<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K


|X|      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2002

                                       or

| |      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the transition period from              to

                       Commission File Number: 001-10377

                                   ACTV, Inc.
             (Exact name of registrant as specified in its charter)

        Delaware                                 94-2907258
(State or other jurisdiction of         (I.R.S. Employer Identification No.)
incorporation or organization)

                 233 Park Avenue South
                  New York, New York                      10003
          (Address of principal executive offices)      (Zip Code)


                                 (212) 497-7000
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:

                     Common Stock, par value $0.10 per share
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) Yes | | No |X|

As of March 25, 2003, the aggregate market value of the voting stock held by
non-affiliates of the registrant (based on The Nasdaq Stock Market closing price
of $0.522 on March 25, 2003) was $19,375,535.

As of March 25, 2003, there were 55,881,047 shares of the registrant's common
stock outstanding.


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                                     PART I

Item 1. Business

This annual report on Form 10-K contains forward-looking statements as defined
by the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include statements concerning plans, objectives, goals, strategies,
future events or performance and underlying assumptions and other statements
that are other than statements of historical facts. These statements are subject
to uncertainties and risks including, but not limited to, product and service
demand and acceptance, changes in technology, economic conditions, the impact of
competition and pricing, government regulation, and other risks defined in this
document and in statements filed from time to time with the Securities and
Exchange Commission. All such forward-looking statements are expressly qualified
by these cautionary statements and any other cautionary statements that may
accompany the forward-looking statements. ACTV, Inc. disclaims any obligations
to update any forward-looking statements to reflect events or circumstances
after the date hereof.


Overview

We are a digital media company that provides proprietary technologies, tools,
and technical and creative services for interactive TV advertising, programming,
and enhanced media applications. We have two operating business segments, which
we call Digital TV and Enhanced Media.

We believe that our Digital TV technologies are unique in providing targeting,
interactivity and accountability for television commercials, and in giving
viewers the ability to instantly customize their viewing experiences for a wide
variety of programming applications. Our Enhanced Media technologies allow both
for the enhancement of video and audio content, including standard TV
programming, with Web-based information and interactivity for entertainment and
education applications.

Our expectation has been that the expansion of digital TV transmission systems
and the emergence of platforms providing the simultaneous delivery of video and
Internet content (convergence programming), will allow television distributors,
advertisers and programmers to bring interactivity to a mass audience. We
believe that our proprietary technologies, tools, and technical and creative
services capabilities position us to capitalize on this growth, if and when it
should occur.

However, the market for interactive television services and applications has
been much slower to develop than we had anticipated. Kagan Worldwide Media, a
leading industry observer, stated in its September 26, 2002 VOD & ITV Investor
publication: "2002 was supposed to be the year interactive TV [ITV] hit its
stride in the U.S. Instead, deployments met with another set of delays, pushing
the industry to regroup and retool strategies once again. Moreover, it's
unlikely either cable or DBS providers will contribute enough resources to the
ITV rollout to produce major results next year."

The terms "we," "our," and "ACTV" used herein refer to ACTV, Inc. and its
subsidiaries. ACTV, Inc. was incorporated under the laws of the State of
Delaware in July 1989. It is the successor, by merger effective November 1,
1989, to ACTV, Inc., a California corporation organized in July 1983. Our
executive offices are located at 233 Park Avenue South, New York, New York
10003, telephone number (212) 497-7000.


Industry Environment/ACTV Restructuring Program

Our industry sector experienced a difficult market environment beginning in
calendar 2001, which only worsened during 2002. Cable and satellite operators,
TV infrastructure suppliers, and content providers scaled back many of their
Digital TV and Enhanced Media initiatives. As a result, our businesses recorded
revenues well below our internal projections in both 2001 and 2002. We believe
that the current market environment and the shrinking pool of advertisement
dollars have resulted in a significant extension of the timeframe for deployment
of certain of our products and services, as noted above.

In response to market conditions, we began a restructuring program in mid-2001
as part of an initiative to rationalize our operations. Some of the specific
actions we took under the restructuring program included:

         o        Reducing our workforce of more than 300 employees by 50%.

         o        Closing and relocating office facilities to reduce our leased
                  space from over 90,000 square feet to approximately 40,000
                  square feet, thereby lowering our annual lease costs from
                  nearly $3.0 million to approximately $1.0 million.

         o        Eliminating low-margin lines of business, e.g., content
                  creation, that have a high fixed-cost base.

         o        Refocusing our HyperTV business from that of a turnkey
                  supplier of applications and services to a licensor of
                  patented technology.


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As a result of worsening conditions in our industry, as noted above, we
subsequently made additional staff reductions--to a current total of fewer than
100 employees--in an effort to further conserve resources. Despite a significant
reduction in our expense base, we were not able to attain profitability or
generate positive cash flow during 2002. Furthermore, given the current market
environment and estimates of our prospects, we are unable to project when in the
foreseeable future we may become profitable.

Asset Revaluations and Restructuring Charges

In compliance with accounting rules, we periodically analyze and reassess the
carrying value of certain long-lived assets. As a result of such analyses, in
the fourth quarter of 2001, third quarter of 2002, and fourth quarter of 2002,
we recorded charges of $11.2 million, $11.5 million, and $0.5 million
respectively, to write down the value of goodwill associated with the
acquisition of Intellocity. In addition, in 2002 and 2001 we recorded charges of
$1.7 million and $1.0 million, respectively, to reduce the carried asset value
of our strategic investments to $5.8 million and $7.4 million, respectively.

We recorded restructuring charges in the third and fourth quarters of 2001
totaling $6.6 million. Please refer to Management's Discussion and Analysis of
Financial Condition and Results of Operations for further details regarding the
nature of these charges.

The asset revaluations and restructuring charges are a reflection of the effect
on our businesses and strategic investments of the difficult environment in our
industry during the past two years.

Proposed Merger

On September 26, 2002, we entered into an agreement and plan of merger with
OpenTV Corp. Under the terms of the merger agreement, each outstanding share of
our common stock will be exchanged in the merger for OpenTV Class A Ordinary
Shares. The amount of OpenTV shares received by our shareholders will be
determined by dividing $1.65 by the then average market price of the OpenTV
shares, subject to the following provisions:

         o        if the average market price of an OpenTV share is then less
                  than $2.25 per share, it will be valued at $2.25 per share for
                  this purpose;

         o        if the average market price of an OpenTV share is then greater
                  than $6.05 per share, it will be valued at $6.05 per share for
                  this purpose.

The merger agreement defines the average market price of the OpenTV shares as
the average of the last market sale prices such shares on each of the five
consecutive trading days immediately preceding the third trading day prior to
the closing date of the merger.

If the average market price of the OpenTV shares at the time of the merger is
less than $0.80 per share, we may elect to terminate the merger agreement by
delivering written notice to OpenTV on the second business day before the
closing date. If we so choose to terminate the merger agreement, OpenTV, by
notice on the day before the closing date, may elect to adjust the exchange
ratio so that our shareholders receive not less than $0.584 per ACTV common
share.

Consummation of the merger is subject to the adoption of the merger agreement by
our stockholders, the approval of the issuance of the OpenTV Class A shares in
the merger by the stockholders of OpenTV, and other closing conditions. Upon
completion of the merger, we will become a wholly-owned subsidiary of OpenTV.

Simultaneously with the execution of the merger agreement, we entered into a
letter agreement with Thomas R. Wolzien regarding, among other things, our
purchase of Wolzien's ownership interest in Media Online Services, Inc., and
certain related patents and rights. The consummation of these proposed
transactions is subject to, among other things, satisfaction (or waiver by the
relevant parties) of all conditions to the merger, and the readiness of the
parties to the merger agreement to effect the merger closing immediately
following the consummation of such transactions.

Industry Background

Digital TV

Our Digital TV applications require the digital transmission of television
signals, either through direct broadcast satellite, or DBS, or through a cable
system that has been upgraded from analog to digital. The development of the
digital transmission of television signals, combined with compression
technology, allows for the delivery by DBS and cable operators of a wider
variety of programming choices.

The platform required for delivery of our Digital TV applications is expanding
rapidly as DBS subscribers and digital cable subscriber households increase in
the United States. Kagan Worldwide Media estimated that by the end of 2002 there
were over 21.1 million digital cable households and 19.5 million DBS households
in the U.S., up from 15.8 million and 17.2 million, respectively, at the end of
2001. Despite this growth, cable and satellite operators to date have not
devoted significant resources to the deployment of interactive television
applications like those we offer.

Enhanced Media

The Internet has grown rapidly over the past several years and is now a medium
used by millions of people for entertainment, education, e-commerce and
multimedia content. The growth in Internet usage has created opportunities for
television content providers and their advertising customers to reach and
interact with millions of Internet users. Due to its interactive nature, the
Internet is a medium that has certain advantages over traditional television: it
can provide customized, targeted programming and advertising to consumers and
generate cost-effective results for advertisers.




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To combat a loss of audience to the Internet and to gain online market share,
certain broadcasters and cable programmers have produced and promoted companion
online programming to traditional TV shows. Due at least in part to the recent
decline in Internet advertising, these initiatives to date have represented only
a small percentage of television programming as a whole. When and if Web-based
content as a real-time companion to conventional TV programming becomes more
popular, we believe that our enhanced media technology puts us in a position to
profit from the shift to the convergence of television and Internet content.


Digital TV

Our Digital TV technologies are patented processes for creating interactive
customized television content and advertising in response to viewer remote
control entries or to information stored locally in a viewer's set-top box. Our
software-only application, which can reside in a digital set-top box or other
local device, such as a personal video recorder or video on demand system,
records a viewer's inputs throughout a program and can later deliver tailored
content to the viewer based on this input. Our Digital TV technology allows us
to send the viewer multiple television signals, related in time and content, and
for the switching among those signals without a visually perceptible delay. The
viewer experiences the video, audio and graphics of a single fluid, programming
stream, while the programming on the other signals remains transparent.

We have focused on advertising and sports entertainment programming as the first
commercial applications of our Digital TV technologies. We have branded our
Digital TV applications for advertising and entertainment as SpotOn and One To
One TV, respectively. Our Digital TV technologies allow, for example, neighbors
to watch the same television program while seeing entirely different
advertisements based upon demographic information, or a sporting event featuring
a different view of the action, highlight packages, statistics or instant
replays.

Our strategy has been to target SpotOn and One To One TV for distribution
through cable operators that have deployed digital transmission systems and
through DBS operators. To receive SpotOn and One To One TV, a viewer needs a
digital set-top box with our software download. We have agreements with leading
manufacturers of digital set-top terminals, including Motorola Broadband
Communications Sector and Scientific-Atlanta for the integration of our software
into their systems.

SpotOn and One To One TV

Digital ADCO, Inc., which developed the SpotOn applications and services, is a
jointly owned by us, Motorola Broadband and OpenTV. SpotOn is a comprehensive
end-to-end system that allows digital cable, satellite and broadcast systems to
offer targeting, interactivity and accountability for television commercials. We
believe that SpotOn, if it can achieve widespread deployment, has the ability to
improve the effectiveness of television advertising.

Based on proprietary technologies contributed by Motorola, OpenTV and ACTV,
SpotOn provides an array of functionalities. For example, our software can
instantaneously choose the most appropriate commercial for each viewer from a
number of alternatives received by the viewer's set-top. SpotOn's logic function
makes this choice based either on demographic information that the TV
distributor, e.g., cable operator, has downloaded to the set-top box or on
remote control responses keyed in by the viewer. SpotOn can discern that a
viewer is watching a program with subtitles in a second language, and deliver
commercials in that language.

SpotOn enables advertisers to give viewers a choice of commercials, allowing
them to select those of greatest relevance. These advertisements can incorporate
program branches that permit the commercial itself to change course in response
to viewer selections.

In addition, SpotOn provides the means for advertisers to receive aggregate
viewer data for each commercial. This information may include the actual number
of homes, by geographic area, where a given commercial was displayed as well as
the percentage of viewers who changed channels or muted the sound during the
commercial.

SpotOn allows for permission-based marketing. A subscriber might request
additional information on a product or make merchandise purchases through the
set-top box, enabled with SpotOn software.

The deployment of SpotOn in a cable system involves principally the installation
of software at the headend and a separate software download to subscriber
set-top boxes. Depending on how the headend is equipped, a minimal investment in
hardware may also be required. SpotOn, which is compatible with a majority of
digital cable set-tops currently deployed in the United States, is not dependent
on the rollout of the next generation of digital boxes.

Our plan for SpotOn, assuming the system can achieve widespread commercial
acceptance, is to charge a license fee to the TV distributors that deploy it, as
well as upstream license fees to programmers and advertising interconnects. We
anticipate that we may also receive fees from advertisers for such services as
data reporting and analysis, encoding targeted commercials, and enabling
television commerce transactions.

To date, our only commercial deployment of SpotOn has been a trial at the
Comcast Cable (formerly AT&T Broadband) system in Aurora, Colorado. Through this
trial, which is currently in progress, SpotOn is available on Comcast Cable's
currently deployed DCT-2000 digital set-top boxes within the Aurora cable
system. We have successfully completed the technical phase of the trial and are
presently conducting the research phase, which we anticipate concluding during
mid-2003.

In April 2002, ACTV Entertainment, Inc., a wholly-owned subsidiary of ours,
signed a multi-year agreement with iN DEMAND, pursuant to which iN DEMAND has
been using our digital video technology to offer digital cable customers Nascar
In Car on iN DEMAND. Nascar In Car is a multi-channel television package that
uses a mix of digital compression technology, real-time telemetry data and
superior graphics to give subscribers an enhanced, interactive viewing
experience. iN DEMAND is distributing the package on a pay-per-view basis
through certain digital cable systems in the United States. ACTV Entertainment's
agreement with iN DEMAND, which covers a total of approximately 90 Nascar races
through 2004, obligates ACTV Entertainment to incur certain production costs,
which it estimates will average $170,000 per race. In turn, ACTV Entertainment
receives a percentage of gross receipts from the sale of pay-per-view
subscriptions.



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We cannot assure you that subscription sales will produce more than negligible
revenues, given that Nascar In Car is the first programming of its kind ever
sold in the United States.

Advision, LLC

In December 2000, we acquired a controlling interest in the assets of VisionTel,
Inc., from nCUBE Corporation, which retained a minority interest. We formed a
new partnership entity, Advision LLC, to hold these assets. Advision LLC's
principal product is the Advision(R) software suite for advertising sales
management in cable, broadband, broadcast, satellite, and Internet services.
Currently, Advision's principal customers are cable multiple system operators.
We believe that Advision complements SpotOn, since it provides software for the
trafficking and billing of commercials delivered through advanced digital cable
and DBS headends.

In August 2002, we acquired nCUBE's minority interest in Advision, LLC in
exchange for a then outstanding receivable due from nCUBE for work performed by
Intellocity prior to its acquisition by us. The book value of the receivable at
the time of the exchange was approximately $119,000.

Digital Television Services

We provide technical services for digital interactive television, primarily
through our Intellocity division. Intellocity, Inc., which we acquired in March
2001 through a share exchange, is engaged in the design, development and
integration of iTV infrastructure and content. Clients for our technical
services include broadband operators, content providers and platform and
infrastructure providers.

No one customer constituted 10% or greater of the total company revenue or
accounts receivable balance as of December 31, 2002. One customer, nCube
Corporation, in our digital television segment constituted 16% of total company
revenue for 2001 and represented 33% of the our accounts receivable balance at
December 31, 2001.

For segment information, see Note 14 to the consolidated financial statements.

Enhanced Media

Overview

Our Enhanced Media business segment serves the market for interactive
convergence programming, which combines video and/or audio programming with Web
content. We market Enhanced Media applications and services through the brand
names of HyperTV with Livewire, and eSchool Online. eSchool Online and HyperTV
with Livewire provide convergence software and services to the education and
entertainment markets, respectively.

Our Enhanced Media business in the past has derived revenues from a number of
sources, including software licensing, technical and content services, data
management, online advertising sales, and e-commerce. During 2002, a large
majority of our Enhanced Media revenues were derived from software licensing and
technical and content services related to the education market.

Education

eSchool Online was the first commercial application of our Enhanced Media
technologies. eSchool integrates educational video with relevant Web content,
interactivity and chat functionality on a student's computer screen. In
addition, eSchool provides teachers and administrators with an application that
allows for online assessment of a student performance.

We have provided eSchool software, content services and technical services to
state departments of education, school districts, and schools throughout the
United States. Over the past several years, we began to focus eSchool on the
professional development market.

Traditionally, we provided eSchool Online applications and services on a custom
development basis to individual education clients. Starting in the year 2000, we
began to market completed eSchool programs to third parties, under licensing
agreements with the clients for whom the programs were originally produced. We
are currently building a library of licensed eSchool content that is available
for nationwide distribution.

HyperTV

HyperTV is a suite of patented processes that enhance a television program or
advertisement with related and synchronized content delivered through the
Internet. HyperTV works by embedding a stream of Web page addresses into a video
or audio signal or by transmitting the addresses directly over the Internet to a
user's computer or wireless device. The Web content is synchronized to
programming being shown on a particular television channel, streamed through the
Internet, or played through a local storage device, such as a DVD player.

In April 2000, we entered into an agreement with Ascent Media Group (formerly
Liberty Livewire Corp.) to jointly market "HyperTV with Livewire." Ascent Media
Group provides audio and video post-production and location services. The
agreement gives Ascent Media Group, a unit of Liberty Media, the right to
provide content creation services and, through its affiliate AT&T IP Services, a
scaleable hosting infrastructure for HyperTV with Livewire. Pursuant to the
agreement creating HyperTV with Livewire, we received a warrant to purchase 2.5
million shares of Ascent Media Group Series A common stock. Such warrant
resulted in the recording of deferred revenue to be recognized over 21 years,
the period of our joint marketing arrangement with Ascent Media Group.



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We were one of the first companies to provide convergence software and services.
During the years 2000 and 2001, we facilitated hundreds of hours of HyperTV with
Livewire programming for music, movies, sports, games and live programming. In
December 2000, we initiated a patent infringement lawsuit against The Walt
Disney Company and certain subsidiaries, which action alleges that the
defendants' "Enhanced TV" system synchronizing a Web site application to, among
others, ESPN Sunday Night and ABC Monday Night Football telecasts has infringed
and is continuing to infringe certain of our patents. In May 2002, the United
States District Court for the Southern District of New York granted summary
judgment in favor of the defendants. Without addressing the validity and
enforceability of the three patents in the suit, the Court reached summary
judgment on non-infringement alone. On July 3, 2002, ACTV appealed the District
Court's decision to the United States Court of Appeals for the Federal Circuit
in Washington, D.C.; the appeal is currently pending. We believe that the
dismissal in May 2002 of our lawsuit against The Walt Disney Company has
negatively impacted our future prospects for licensing HyperTV.

During 2001, our HyperTV with Livewire business began to decline. We believe the
decline can be attributed to a number of factors:

         *        reluctance of certain potential clients to employ our
                  technology pending resolution of the lawsuit against The Walt
                  Disney Company;

         *        strong price competition from competitors;

         *        contraction of overall ad spending in the U.S.;

         *        sluggish growth in the demand for so-called two-box
                  convergence.



During 2002, we have not succeeded in generating revenues of any significance
from licensing HyperTV technology for entertainment applications.


Enhanced Media Revenue Concentration

The recognition of revenue resulting from the amortization of deferred revenue
associated with our joint marketing arrangement with Ascent Media Group
accounted for approximately 32%, 26% and 23% of our total revenues for the years
ended December 31, 2002, 2001 and 2000.

For the years ended December 31, 2002, 2001 and 2000, certain individual
customers in the Enhanced Media segment accounted for more than 10% of our
revenues excluding the amortization of the Ascent Media Group deferred revenue
as follows:

Customer                                 2002         2001          2000
--------                                 ----         ----          ----

The State of Alabama                      -           11%            23%
Dallas Independent School District       11%          --             --



At December 31, 2002, Dallas Independent School District represented 20%,
Georgia Professional Standards Commission represented 11%, and Newburgh Enlarged
City School District represented 13% of our accounts receivable balance. At
December 31, 2001, no customer represented more than 10% of our accounts
receivable balance. At December 31, 2000, one customer, the State of Alabama,
represented 32% of our accounts receivable balance.

For segment information, see Note 14 to the consolidated financial statements.

Equipment Suppliers

We do not intend to manufacture set-top converters, terminals, video servers or
other devices in connection with any of our applications or services.

We have entered into non-exclusive, royalty-free agreements with Motorola
Broadband and Scientific-Atlanta, the dominant suppliers of set-top terminals in
the United States, for the integration of our Digital TV technologies into
digital set-top boxes of these companies.

In addition, we have agreements with the leading providers of set-top box
middleware, including OpenTV, Liberate and MicrosoftTV, to ensure the
compatibility of our Digital TV technologies with their platforms. Middleware is
set-top box software that acts as an operating system for the terminal.

Patents and Other Intellectual Property

We have sought to protect the proprietary features of our individualized
programming technologies and Enhanced Media technologies through patents,
copyrights, confidentiality agreements and trade secrets both in the United
States and overseas. As of the present time, the United States Patent and
Trademark Office has issued certain patents to us that are currently in force.
We also have additional patents pending. The patents expire at various dates
from 2003 to 2018. Corresponding patents for some of the above U.S. patents have
been granted by or are pending in the Patent Offices of Canada, Japan, South
Korea, China, Singapore, India, Australia and various countries in Europe.

We cannot assure you that our patents are enforceable, or, if challenged, that
we can successfully defend them, particularly in view of the high cost of patent
litigation, nor can we assure you that we will derive any competitive advantages
from them. To the extent that patents are not issued for any other products
developed by us, we would be subject to more competition. The issuance of
patents may be insufficient to prevent competitors from essentially duplicating
our products by designing around the patented aspects. In addition, we cannot
assure you that our products will not infringe on patents owned by others,
licenses to which may not be available to us, nor that competitors will not
develop functionally similar products outside the protection of any patents we
have or may obtain.



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The inventors named on all of our issued patents have assigned to us all right,
title and interest in and to the above U.S. patents and any corresponding
foreign patents or applications based thereon. We require that each of our full
time employees, consultants and advisors execute a confidentiality and
assignment of proprietary rights agreement upon the commencement of employment
or a consulting relationship. These arrangements generally provide that all
inventions, ideas and improvements made or conceived by the individual arising
out of the employment or consulting relationship are our exclusive property.
These agreements generally also require that all such information be kept
confidential and not disclosed to third parties, except with our consent or in
specified circumstances. We cannot be certain, however, that these agreements
will provide effective protection for our proprietary information in the event
of unauthorized use or disclosure of such information.


Competition

The markets for digital television and enhanced media applications and services
are extremely competitive. These markets are new, quickly evolving and
characterized by untested consumer demand and a lack of industry standards. They
are, therefore, subject to significant changes in the products and services
offered by existing market participants and the emergence of new market
participants. As a result, it is difficult to determine which companies and
technologies are competing with us or in the future may compete with us in one
or more of our businesses. If the proposed merger with OpenTV is consummated, we
will become part of a business that includes Spyglass Integration and Wink
Communications (each a division of OpenTV), which are current competitors of
ours.

We believe our competitors in Enhanced Media services markets include Gold
Pocket, Digeo, Wink Communications and Worldgate Communications, Inc., among
others. We also face competition from traditional television and cable
broadcasters such as ABC, CBS, FOX, and NBC. Some of these broadcasters have in
the past, and may in the future, develop and broadcast their own
television/Internet convergence programming. (See Item 3. LEGAL
PROCEEDINGS--Action against the Walt Disney Company). In addition, we may face
future competition from companies such as Microsoft, RealNetworks, Inc., and
Veon. Many of these applications could be extended to compete with some or all
of our existing or proposed enhanced media offerings.

We believe our competitors in the Digital TV market for targeted advertising and
technical services include companies such as Visible World, NAVIC Ad-Exact,
Spyglass, Rachis, MetaTV, and Digeo. We do not believe that there are currently
any competitors offering products comparable to One To One TV, but there are a
number of companies, including NDS Group plc, that market products and services
outside the U.S. that have limited functionalities in common with this product.
Our Digital TV products may be deemed to compete for limited shelf space within
a digital set-top box with other dissimilar applications, such as video on
demand, high definition television, and telephony.


Government Regulation

We believe that neither our present nor future implementation of One To One TV
or SpotOn is subject to any direct substantial government regulation. However,
the broadcast industry in general, and cable television, DBS and wireless
communication in particular, are subject to substantial government regulation.

Cable Television. Pursuant to federal legislation enacted in 1992, (the "1992
Cable Act"), and amended by the Telecommunications Act of 1996, the Federal
Communications Commission (the "FCC") substantially re-regulated the cable
television industry in various areas, including rate regulation, competitive
access to programming, and "must carry" and retransmission consent for broadcast
stations. These rules, among other things, restrict the extent to which a cable
system may profit from, or recover costs associated with, adding new program
channels, impose certain carriage requirements with respect to television
broadcast stations, limit exclusivity provisions in programming contracts, and
require prior notice for channel additions, deletions and changes. The 1992
Cable Act also regulates the collection and use of subscriber information over
cable systems by cable operators and their affiliates. The United States
Congress and the FCC also have under consideration, and may in the future adopt,
new laws, regulations and policies regarding a wide variety of matters that
could, directly or indirectly, materially adversely affect our operations. In
particular, the FCC recently initiated an inquiry to determine whether the cable
industry's future provision of interactive services should be subject to
regulations ensuring equal access and competition among service vendors.

Internet. Increased regulation of the Internet might slow the growth in use of
the Internet, which could decrease demand for our services, increase our cost of
doing business or otherwise have a material adverse effect on our business,
financial condition and results of operations. Congress has passed legislation
regulating certain aspects regarding the use of the Internet, including the
protection of children, copyright infringement, user privacy, taxation, access
charges and liability for third-party activities. The Federal Trade Commission
has adopted regulations enacting the Children's Online Privacy Protection Act,
which governs collection and use of information regarding children over the
Internet. In addition, federal, state and local governmental organizations as
well as foreign governments are considering other legislative and regulatory
proposals that would regulate the Internet. Areas of potential regulation
include libel, pricing, quality of products and services, intellectual property
ownership and personal privacy. Storage and use of personal information are
subject to state and federal regulation. Storage and use of such information may
also subject us to privacy claims relating to our use and dissemination of
personal information. We do not know how courts will interpret laws governing
the Internet or the extent to which they will apply existing laws regulating
issues such as property ownership, libel and personal privacy to the Internet.
Therefore, we are not certain how new laws governing the Internet or other
existing laws will affect our business. We cannot assure you that we will be
able to comply with any future laws or regulations that may be imposed on our
operations.

Employees

As of December 31, 2002, we employed 129 full-time employees. We are not subject
to any collective bargaining agreements; we believe that our relationships with
our employees are generally satisfactory.


                                       6
<PAGE>

Item 2. Properties

We maintain our principal and executive offices at 233 Park Avenue South, New
York, New York, where we lease approximately 12,000 square feet. Our lease for
this facility extends through 2016. We also lease offices and technical space
totaling approximately 25,000 square feet in five other facilities, located in
New Jersey, Colorado, and Oklahoma. These leases expire at various dates through
2005.



Item 3. Legal Proceedings

ACTV, Inc. and its wholly-owned subsidiary HyperTV Networks, Inc. are
co-plaintiffs in a civil action filed against The Walt Disney Company, ABC,
Inc., and ESPN, Inc. in December 2000, which action alleges that the defendants'
"Enhanced TV" system synchronizing a Web site application to, among others, ESPN
Sunday Night and ABC Monday Night Football telecasts has infringed and is
continuing to infringe certain of the plaintiffs' patents. In May 2002, the
United States District Court for the Southern District of New York granted
summary judgment in favor of the defendants. Without addressing the validity and
enforceability of the three patents in the suit, the Court reached summary
judgment on non-infringement alone. On July 3, 2002, ACTV appealed the District
Court's decision to the United States Court of Appeals for the Federal Circuit
in Washington, D.C.; the appeal is currently pending.

On November 18, 2002, a purported class action complaint was filed in the Court
of Chancery of the State of Delaware in and for the County of New Castle against
ACTV, its directors and OpenTV. The complaint generally alleges that the
directors of ACTV have breached their fiduciary duties to the ACTV stockholders
in approving the merger agreement and that, in approving the merger agreement,
ACTV 's directors failed to take steps to maximize the value of ACTV to its
stockholders. The complaint seeks certain forms of equitable relief, including
enjoining the consummation of the merger. We believe that the allegations are
without merit and intend to defend against the complaint vigorously. We cannot,
however, provide any assurance that ACTV or OpenTV will be successful.


Item 4. Submission of Matters to a Vote of Security Holders

On June 27, 2002 we held our Annual Meeting of Shareholders for which we
solicited votes by proxy. The following is a brief description of the matters
voted upon at the meeting and a statement of the number of votes cast for and
against, and the number of abstentions as to each matter.

1. Election of directors

                                        For                 Withheld

William C. Samuels                  45,253,535                 658,606
John C. Wilcox                      45,318,208                 593,933



2. To ratify the appointment of Deloitte & Touche, LLP as independent auditors.

          For                      Against                 Abstain
        44,818,163               1,079,077                 14,901





                                       7
<PAGE>


                                     PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters

ACTV's common stock is traded on The Nasdaq Stock Market under the symbols
"IATV". The following table sets forth the high and low bid prices for ACTV
common stock as reported by Nasdaq.


                                  Common Stock


2002 Quarter                 High             Low
------------                 ----             ----

First                        2.170            1.330
Second                       1.740            1.130
Third                        1.350            0.730
Fourth                       0.840            0.500

2001 Quarter                 High              Low
------------                 ----             ----

First                        7.875            3.250
Second                       4.125            2.220
Third                        3.280            1.340
Fourth                       2.260            1.260


On March 25, 2003, there were approximately 620 holders of record of our
55,881,047 outstanding shares of common stock. On March 25, 2003, the high and
low bid prices of our common stock as reported by Nasdaq were $0.54 and $0.47,
respectively. We have not paid cash dividends since our organization. We plan to
use earnings, if any, to fund growth and do not anticipate the declaration of
the payment of cash dividends in the foreseeable future.

In March 2003, we received notification from The Nasdaq Stock Market that we are
not in compliance with Nasdaq's minimum $1.00 bid price requirement for the
continued listing of our shares. For us to regain compliance, our common stock
must close at $1.00 per share or more for a minimum of 10 consecutive trading
days prior to May 7, 2003. If we are not able to demonstrate compliance by this
date, Nasdaq will notify us in writing of the delisting of our shares. Upon
receipt of such notification, we may make an appeal to Nasdaq's Listing
Qualifications Panel.





                                       8
<PAGE>

Item 6.  Selected Financial Data

<TABLE>
<CAPTION>
                                                           Years Ended December 31,
                                     -------------------------------------------------------------
                                       2002        2001          2000          1999            1998
                                     --------    ---------    -----------    ---------    --------
                                              ($000's except share and per share data)

<S>                                  <C>         <C>          <C>            <C>          <C>
Statement of Operations Data:
Revenues                             $ 11,287    $  13,689    $     8,016    $   2,910    $  1,625
                                     --------    ---------    -----------    ---------    --------

(Loss)/income before extraordinary
item and cumulative effect of
accounting change                     (43,587)     (42,658)       153,504     (234,875)    (23,342)
Cumulative transition effect of
adopting SFAS No. 133                    --        (58,732)          --           --          --

Net (loss)/income                    $(43,587)   $(101,390)   $   152,093    $(234,875)   $(23,342)
                                     ========    =========    ===========    =========    ========

Basic
(Loss)/income per share before
extraordinary item and cumulative
effect of accounting change          $  (0.78)   $   (0.77)   $      3.10    $   (6.11)   $  (1.10)
Extraordinary item                       --           --            (0.03)        --          --
Cumulative transition effect of
adopting SFAS No. 133                    --          (1.07)          --           --          --
                                     --------    ---------    -----------    ---------    --------
Basic (loss)/income per share
applicable to common shareholders    $  (0.78)   $   (1.84)   $      3.07    $   (6.11)   $  (1.10)
                                     ========    =========    ===========    =========    ========

Diluted
(Loss)/income per common share
before extraordinary item and
cumulative effect of accounting
change                               $  (0.78)   $   (0.77)   $      2.53    $   (6.11)   $  (1.10)
Extraordinary item                       --           --            (0.02)        --          --
Cumulative transition effect of
adopting SFAS  No. 133                   --          (1.07)          --           --          --
                                     --------    ---------    -----------    ---------    --------

Diluted (loss)/income per share
applicable to common shareholders    $  (0.78)   $   (1.84)   $      2.51    $   (6.11)   $  (1.10)
                                     ========    =========    ===========    =========    ========

Balance Sheet Data:
Cash and cash equivalents            $ 23,814    $  69,036    $   122,488    $   9,413    $  5,198
Working capital                        46,867       71,271        115,684        9,151       3,007
Total assets                           78,775      139,587        235,509       28,984      13,616
Long-term debt (including current
         portion)                        --           --             --          4,804       4,315
</TABLE>

The historical financial information has been restated to include the accounts
and results of operations of Bottle Rocket Inc., which was acquired on August
17, 2000, in a transaction accounted for under the pooling of interests method,
as described in Note 4 in the consolidated financial statements.







                                       9
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

You should read the following discussion together with our consolidated
financial statements and related notes included elsewhere and incorporated by
reference. The results discussed below are not necessarily indicative of the
results to be expected in any future periods. To the extent that the information
presented in this discussion addresses financial projections, information or
expectations about our products or markets or otherwise makes statements about
future events, such statements are forward-looking and are subject to a number
of risks and uncertainties that could cause actual results to differ materially
from the statements made. See Item 1. Business--Overview for further information
about forward-looking statements.

We are a digital media company that provides proprietary technologies, tools,
and technical and creative services for interactive TV advertising, programming,
and enhanced media applications. We have two operating business segments, which
we call Digital TV and Enhanced Media.

We believe that our Digital TV technologies are unique in providing targeting,
interactivity and accountability for television commercials, and in giving
viewers the ability to instantly customize their viewing experiences for a wide
variety of programming applications. Our Enhanced Media technologies allow both
for the enhancement of video and audio content, including standard TV
programming, with Web-based information and interactivity.

RESULTS OF OPERATIONS

Comparison of Fiscal Year Ended December 31, 2002 and December 31, 2001

Revenues. Revenues decreased 18% to $11.3 million for the year ended December
31, 2002, from $13.7 million for the year ended December 31, 2001. The decrease
is the result of a decline in revenues in both our Digital TV and Enhanced Media
segments. Revenues from our professional and technical services business, which
accounted for the largest percentage of our Digital TV revenues, were
significantly lower in 2002. In the Enhanced Media segment, eSchool revenue
increases in 2002 were insufficient to compensate for a decline in HyperTV with
Livewire revenues. Revenues for the each of years ended December 31, 2002 and
2001 included $3.6 million (31% and 26%, respectively, of total revenues)
related to the recognition of revenue from the Ascent Media Group (formally
Liberty Livewire Corporation) joint marketing arrangement.

Goodwill Impairment Charge. During the third and fourth quarters of 2002, we
recorded a non-cash impairment charge of $11.5 million and $0.5 million,
respectively, related to the goodwill associated with Intellocity. Accounting
for goodwill is promulgated by SFAS No. 142, which requires that the goodwill of
a reporting unit be tested for impairment between annual tests if an event
occurs or circumstances change that would more likely than not reduce the value
of a reporting unit below its carrying amount.

Through September 30, 2002, our Intellocity unit fell significantly short of the
revenue and profitability goals management established for it at the beginning
of 2002. In addition, we substantially scaled back Intellocity's revenue
forecasts for fiscal 2003. We believe this shortfall is principally the result
of Intellocity's existing and prospective clients who have reduced expenditures
for enhanced and interactive TV initiatives.

Consequently, we conducted a review of the realizability of the goodwill value
attributed to Intellocity. As a result of this review, we developed a revised
operating plan to restructure and stabilize the business. The revised
projections by service line provided the basis for measurement of the asset
impairment charge. We calculated the present value of expected future cash flows
of Intellocity's service lines to determine the fair value of the assets.
Accordingly, in the third quarter of 2002, we recorded an impairment charge of
$11.5 million. In the fourth quarter of 2002, we continued our review for
possible additional impairment, and recorded an additional impairment charge for
the remaining amount of $0.5 million.

During the fourth quarter of 2001, we recorded a non-cash impairment charge of
$11.2 million related to the goodwill associated with the Intellocity
acquisition. Intellocity's inability to achieve the operating results specified
in its 2001 budget--operating at a loss for fiscal 2001-- triggered an
impairment review in the fourth quarter of its long-lived assets. We then
utilized revised projections for 2003 and beyond for Intellocity's business that
provided the basis for measurement of the asset impairment charge.

Restructuring Charge. For the year ended December 31, 2001, we recorded an
expense of $6.6 million, the majority of which was non-cash, related to
restructuring initiatives. This expense includes charges for the surrender of
real estate leases and employee severance costs. Pursuant to the
surrender--agreed to in September 2001--of certain of our New York City leases,
we received cash and cash equivalents of approximately $9.3 million in the
fourth quarter of 2001. This change in cash and cash equivalents was a result of
payments from third parties and a release of restricted cash formerly used to
guarantee the leases. At December 31, 2001 we had $0.8 million remaining in
accrued restructuring charges, which were paid out over the first two quarters
of 2002. There was no restructuring charge for 2002.

Stock-Based Compensation. Stock-based compensation resulted in credits for the
years ended December 31, 2002 and 2001 of $6.0 million and $12.1 million. The
reduction in expense was the result of a continued lower market price of our
common stock. We recorded stock-based compensation expense based on increases
and decreases in the market price of our common stock above the exercise price
of certain employee options, which were subject to variable option accounting
treatment. To the extent that we had a stock-based compensation obligation at
the beginning of a given reporting period, we recognized a reduction in expense
related to the unexercised vested variable options for that period based on a
reduction of the market price for our stock at the end of the period. In the
first quarter of 2002, we rescinded the applicable option exercise provisions
that resulted in the variable option accounting treatment for certain options in
our financial statements.

In the first quarter of 2002, we canceled outstanding options totaling 2,093,334
shares at exercise prices of $6.50 to $13.50 and, in their place, granted new
options totaling 1,046,667 shares at an exercise price of $2.00 per share, which
was above the market value of such shares at the time of grant. All the grantees
were employees whose salary compensation had been reduced in conjunction with
our restructuring efforts in the second half of 2001. However, the executive
officers whose salary compensation was reduced were not eligible to participate.



                                       10
<PAGE>

The newly granted options will be subject to variable option accounting
treatment. That is, if the closing market price of our common stock is greater
than $2.00 per share at any reporting date, we will recognize a non-cash
compensation expense equal to the difference between such market price and $2.00
multiplied by the number of outstanding option shares subject to variable
accounting treatment. To the extent that we are carrying an accrued expense of
this type at any given reporting date and there is a decline in the market price
of our stock at the end of the subsequent reporting period, we will recognize a
reduction in expense for the subsequent period. Our December 31, 2002
consolidated financial statements reflect no expense related to the 1,046,667
variable options, since the closing market price of our common stock at December
31, 2002 was less than the option exercise price of $2.00 per share.

Total Selling, General and Administrative Expenses. Total selling, general and
administrative expenses for year ended December 31, 2002 decreased 30%, to $32.5
million, compared with $46.6 million for the year ended December 31, 2001. The
expense decline was the result of lower employee and occupancy costs achieved
through the restructuring initiatives undertaken in 2001, which more than
compensated for additional general and administrative expenses of $5.4 million
related to Nascar In-Car for the year ended December 31, 2002. For the year
ended December 31, 2001, we incurred no expenses related to Nascar In-Car.

Other Expense. Other expense in 2002 and 2001 includes the changes in fair value
of a warrant investment in Ascent Media Group (formerly Liberty Livewire Corp.)
that is now accounted for as a derivative instrument after adoption of SFAS No.
133 and the application of its requirements. Since adopting SFAS No. 133 in
2001, we carry the investment in warrant at fair value, rather than at cost. We
recorded a net decrease in the value of the investment in warrant of $13.6
million and $1.0 million for the year ended December 31, 2002 and 2001,
respectively. For the year ended December 31, 2002 and 2001, other expense also
includes a $1.7 million and $1.0 million write-down related to certain of our
strategic investments that we deemed to be other than temporarily impaired.

Depreciation and Amortization. Depreciation and amortization expense decreased
45% for the year ended December 31, 2002, to $5.2 million, from $9.4 million
during the same period of 2001. The decrease is principally related to lower
amortization expense as the result of our adoption of SFAS No. 142 on January 1,
2002.

Interest (Expense)/Income. Interest income, net of interest expense, for the
year ended December 31, 2002 was $1.3 million, compared with net interest income
of $4.2 million for the year ended December 31, 2001. The decrease was the
result of lower cash balances and significantly lower prevailing interest rates
in 2002.

Minority Interest. The minority interest benefit for the year ended December 31,
2002 was $2.8 million, compared with a benefit of $3.2 million in 2001. The
benefit is primarily attributable to the ownership interest held by third
parties in Digital ADCO.

Cumulative Transition Effect of Change in Accounting Principle. Effective
January 1, 2001, ACTV adopted FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137 and No. 138.
SFAS No. 133 requires that all derivative financial instruments be recorded in
the balance sheet at fair value. The provisions of SFAS No. 133 govern the
accounting for our investment in 2.5 million restricted warrants for Ascent
Media Group. Prior to the adoption of SFAS No. 133, we carried this warrant at
cost. With the adoption of SFAS No. 133, we now recorded the investment at fair
value. Our adoption of SFAS No. 133 resulted in our recording a cumulative
effect transition adjustment loss of approximately $58.7 million at January 1,
2001. There may be periods with significant non-cash increases or decreases in
our net income or net loss as a result of changes in the fair value of the
warrant investment in Ascent Media Group.

Net Loss Applicable to Common Shareholders. For the year ended December 31,
2002, our net loss applicable to common stockholders was $43.6 million, or $0.78
per basic and diluted share, compared with net income of $101.4 million, or
$1.84 per basic and diluted share, for the year ended December 31, 2001.

Comparison of Fiscal Year Ended December 31, 2001 and December 31, 2000

Revenues. Revenues increased 71% to $13.7 million for the year ended December
31, 2001, from $8.0 million for the year ended December 31, 2000. The increase
is the result of the inclusion in the more recent year of revenues from our
Digital TV segment, which accounted for approximately 30% of total revenues. For
the year ended December 31, 2000, all of our revenue was derived from Enhanced
Media licensing and services. Digital television revenues for 2001 were
principally from professional and technical services delivered through
Intellocity, which we acquired in March 2001, and software licensing and
services revenue through Advision, which we acquired January 1, 2001. Revenues
for the years ended December 31, 2001 and 2000 included $3.6 million and $1.8
million, respectively, (26% and 23%, respectively, of total revenues) related to
the recognition of revenue from the Ascent Media Group joint marketing
arrangement.

Goodwill Impairment Charge. During the fourth quarter of 2001, we recorded a
non-cash impairment charge of $11.2 million related to the goodwill associated
with the Intellocity acquisition. Intellocity's inability to achieve the
operating results specified in its 2001 budget (it operated at a loss for fiscal
2001) triggered an impairment review in the fourth quarter of its long-lived
assets. We developed a revised operating plan to restructure and stabilize the
business. The revised projections by service line provided the basis for
measurement of the asset impairment charge. We calculated the present value of
expected future cash flows of Intellocity's service lines to determine the fair
value of the assets. Accordingly, in the fourth quarter of 2001, we recorded an
impairment charge of $11.2 million.

Restructuring Charge. For the year ended December 31, 2001, we recorded an
expense of $6.6 million, the majority of which was non-cash, related to
restructuring initiatives. This expense includes charges for the surrender of
real estate leases and employee severance costs. Pursuant to the
surrender--agreed to in September 2001--of certain of our New York City leases,
we received cash and cash equivalents of approximately $9.3 million in the
fourth quarter of 2001. This change in cash and cash equivalents was a result of
payments from third parties and a release of restricted cash formerly used to
guarantee the leases. At December 31, 2001 we had $0.8 million remaining in
accrued restructuring charges to be paid out over the first two quarters of
2002.



                                       11
<PAGE>

Stock-Based Compensation. Stock-based compensation resulted in a credit for the
year ended December 31, 2001 of $12.1 million, compared with a credit of $186.7
million for the year ended December 31, 2000. The reduction in expense was the
result of a continued lower market price of our common stock at December 2001.
We recorded stock-based compensation expense based on increases and decreases in
the market price of our common stock above the exercise price of certain
employee options, which were subject to variable option accounting treatment. To
the extent that we had a stock-based compensation obligation at the beginning of
a given reporting period, we recognized a reduction in expense related to the
unexercised vested variable options for that period based on a reduction of the
market price for our stock at the end of the period.

Total Selling, General and Administrative Expenses. Total selling, general and
administrative expenses for year ended December 31, 2001 were $46.6 million,
compared with $45.7 million for the year ended December 31, 2000, an increase of
2.0%. The increase in costs was attributable to the inclusion in the more recent
year of the operations of Intellocity and Advision, both of which we acquired
during 2001. Excluding the effect of Intellocity and Advision, our total
selling, general and administrative expenses declined $6.0 million, or 13.0% in
the more recent year. This decrease is the result of cost cutting measures we
adopted in the third and fourth quarters of 2001, including a significant
reduction in personnel and occupancy costs. Selling and administrative expenses
for 2001 and 2000 include $2.3 million and $6.9 million, respectively, of
deferred compensation expense, of which $1.5 million and $4.5 million,
respectively, was non-cash.

Other Expense. Other expense in 2001 includes the changes in fair value of a
warrant investment in Ascent Media Group that is now accounted for as a
derivative instrument after adoption of SFAS No. 133 and the application of its
requirements. Since adopting SFAS No. 133 in 2001, we carry the investment in
warrant at fair value, rather than at historical cost. We recorded a net
decrease in the value of the warrant investment of $1.0 million for the year
ended December 31, 2001. For the year ended December 31, 2001 and 2000, other
expense also includes a $1.0 million and $0.8 million write-down related to
certain of our strategic investments that we deemed to be other than temporarily
impaired.

Depreciation and Amortization. Depreciation and amortization expense increased
$5.5 million for the year ended December 31, 2001, to $9.4 million, from $3.9
million during the same period of 2000, due primarily to our increased
investment in patents, software development, and equipment and additional
goodwill recorded in connection with our purchase of Intellocity, Inc. in March
2001.

Interest (Expense)/Income. Interest income for the year ended December 31, 2001
was $4.2 million, compared with net interest income of $7.4 million for the year
ended December 31, 2000. The decrease was the result of lower cash balances in
2001. We incurred interest expense for 2000 of $0.3 million, compared to $0 for
2001. Interest expense for 2000 relates to the $5 million original face value
notes issued by a subsidiary of ours in January 1998; the notes were retired on
April 3, 2000.

Minority Interest. The minority interest benefit for the year ended December 31,
2001 was $3.2 million, compared with a benefit of $1.7 million in 2000. The
benefit is primarily attributable to the minority interest held by others in
Digital ADCO.

Extraordinary Item. We recorded an extraordinary loss in 2000 of $1.4 million,
resulting from the early extinguishment of $5.0 million notes issued in January
1998.

Cumulative Transition Effect of Change in Accounting Principle. Effective
January 1, 2001, we adopted FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137 and No. 138.
SFAS No. 133 requires that all derivative financial instruments be recorded in
the balance sheet at fair value. The provisions of SFAS No. 133 the accounting
for our investment in 2.5 million restricted warrants of Ascent Media Group.
Prior to the adoption of SFAS No. 133, we carried this warrant at historical
cost. With the adoption of SFAS No. 133, we now recorded the investment at fair
value. Our adoption of SFAS No. 133 resulted in our recording a cumulative
effect transition adjustment loss of approximately $58.7 million at January 1,
2001. There may be periods with significant non-cash increases or decreases our
net income/loss as a result of changes in the fair value of the investment in
warrant.

Net Loss Applicable to Common Shareholders. For the year ended December 31,
2001, our net loss applicable to common stockholders after extraordinary loss
and cumulative effect of accounting change was $101.4 million, or $1.84 per
basic and diluted share, compared with net income of $152.1 million, or $3.07
per basic share and $2.51 per diluted share, for 2000. The significant
difference between the two years was the result of predominately non-cash items,
including a reduced expense reduction from stock-based compensation, a goodwill
impairment charge, restructuring expense, and the cumulative effect of
accounting change relating to the adoption of SFAS No. 133 incurred during the
more recent year.



                                       12
<PAGE>

Liquidity and Capital Resources

Since our inception, we have not generated revenues sufficient to fund our
operations, and have incurred operating losses. Through December 31, 2002, we
had an accumulated deficit of approximately $307 million. Our cash position
(including short-term investments) on December 31, 2002 was $47.8 million,
compared with $77.9 million on December 31, 2001.

Net Cash Used In Operating Activities. During the year ended December 31, 2002,
we used cash of $27.4 million for operations, compared with $30.4 million for
the year ended December 31, 2001. The decrease in net cash used by operating
activities relates principally to a lower net operating loss in the more recent
year, despite an increase in cash expenditures of approximately $1.8 million
related to the proposed merger with OpenTV Corp and $5.4 million related to
Nascar In-Car.

Net Cash Used In Investing Activities. For the year ended December 31, 2002, we
used cash for investing activities of $17.8 million, compared with $26.0
million, for year ended December 31, 2001. The decrease in cash used in
investing activities was due principally to significantly reduced investments in
property and equipment and in software development by approximately $9.1
million, which is partially offset by an increase of $6 million in investments
in short-term securities in 2002.

Net Cash Provided By Financing Activities. For the year ended December 31, 2002,
we received no significant cash from financing activities, compared to $2.9
million in cash provided by financing activities for the year ended December 31,
2001, which resulted from the cancellation of a letter of credit for our
account. We have funded, and continue to fund, our cash requirements from the
net proceeds of a public, follow-on offering completed on February 3, 2000.
Through a group of underwriters, we sold a total of 4.6 million common shares,
resulting in net proceeds of $129.7 million. On March 27, 2000, Liberty Digital,
Inc. invested an additional $20 million in us by exercising a warrant granted in
March 1999. For the year ended December 31, 2000, OpenTV invested $10 million in
our Digital ADCO subsidiary, and Motorola invested $3.0 million and $2.0 million
in the years ended December 31, 2000 and 1999, respectively, in Digital ADCO.

At December 31, 2002, future aggregate minimum lease commitments under
non-cancelable operating leases and employment contracts with guarantees, were
as follows:
                            Operating           Employee
Year                         Leases            Agreements
                             ------            ----------

2003                      $  909,271          $1,275,552
2004                         791,602           1,102,117
2005                         557,403              74,334
2006                         427,595                   -
2007                         427,595                   -
Thereafter                 3,728,221                   -
                          ----------          ----------
Total                     $6,841,687          $2,452,003
                          ==========          ==========

In April 2002, ACTV Entertainment, Inc., a wholly-owned subsidiary of ours,
signed a multi-year agreement with iN DEMAND, pursuant to which iN DEMAND has
been using our digital video technology to offer digital cable customers Nascar
In Car on iN DEMAND. ACTV Entertainment's agreement with iN DEMAND, which covers
a total of approximately 90 Nascar races through 2004, obligates ACTV
Entertainment to incur certain production costs, which it estimates will average
$170,000 per race (see Note 18).


Critical Accounting Policies

ACTV and Liberty Livewire LLC, a unit of Ascent Media Group (formerly Liberty
Livewire Corporation), in April 2000 entered into a joint marketing arrangement
to market "HyperTV with Livewire." Ascent Media Group received various rights to
use certain patented ACTV technologies in providing turnkey convergence
services, including application hosting, web authoring services, data
management, e-commerce and other value-added services for advertisers,
television programmers, studios and networks.

In connection with granting these licensed rights to Ascent Media Group, we
received a warrant to acquire 2,500,000 shares of Ascent Media Group common
stock at an exercise price of $30 per share. The warrant, which expires in June
2015 and includes registration rights, is exercisable ratably over five years,
beginning April 13, 2001. With certain exceptions, the warrant is not
transferable. The warrant is non-forfeitable and fully vested (as the term
"vesting" is used by the Financial Accounting Standards Board in its EITF 00-8:
Accounting by a Grantee for an Equity Instrument to Be Received in Conjunction
with Providing Goods or Services). We recorded an investment and deferred
revenue in the amount of approximately $76.0 million, the estimated value of the
warrant (using the Black-Scholes pricing model) at the time the agreement was
executed. Beginning January 1, 2001, we record changes in fair value in the
investment in warrant to the statement of operations as the result of our
adoption of SFAS No. 133. We expect the value of the warrant to fluctuate based
on the underlying stock price of Ascent Media Group. We do not currently expect
to exercise or register shares in the coming year. The deferred revenue
resulting from the Ascent Media Group transaction is being amortized into
revenue over a period of 21 years, the contractual term of the joint marketing
arrangement.

The cost of patents which represent patent acquisition costs and legal costs
relating to patents pending, is being amortized on a straight-line basis over
the estimated economic lives of the respective patents (averaging 15 years),
which is less than the statutory life of each patent.



                                       13
<PAGE>

We capitalize costs incurred for the development of software products when
economic and technological feasibility of such products has been established.
Capitalized software costs are amortized on a straight-line basis over the
estimated useful lives of the respective products.

In businesses where we are delivering specific services and products, revenue is
recognized from sales when a product is shipped and when services are performed.

Revenue and anticipated profits under long-term contracts are recorded on a
percentage-of-completion basis, generally using the cost-to-cost method of
accounting where sales and profits are recorded based on the ratio of costs
incurred to estimated total costs to completion.

We recognize the revenue related to the sale of indefinite software licenses
upon delivery, installation and acceptance of the software product, unless the
fee is not fixed or determinable or collectibility is not probable. If the fee
is not fixed or determinable, revenue is recognized as payments become due from
the customer. If collectibility is not considered probable, revenue is
recognized when the fee is collected.

Arrangements that include software services, such as training or installation,
are evaluated to determine whether those services are essential to the
functionality of other elements of the arrangement. When software services are
considered essential, revenue under the entire arrangement is recognized as the
services are performed using the percentage-of-completion contract accounting
method. When software services are not considered essential, the fee allocable
to the service element is recognized as revenue as the services are performed.

Where software licenses are granted for a specific period of time, with related
content and maintenance contracts, revenue is deferred and then recognized
ratably over the life of the license.

ACTV and Liberty Livewire LLC, a unit of Ascent Media Group (formerly Liberty
Livewire Corporation), in April 2000 entered into a joint marketing arragement
to market "HyperTV with Livewire." Ascent Media Group received various rights
to use certain patented ACTV technologies in providing turnkey convergence
services, including application hosting, web authoring services, data
management, e-commerce and other value-added services for advertisers,
television programmers, studios and networks.


We recorded a charge or a credit to stock-based compensation expense for
increases or decreases, in the market value of the our common stock in excess of
the exercise price of certain employee options, which were subject to variable
option accounting treatment. We recorded a credit in stock-based compensation
for the year ended December 31, 2002 as the market price declined as compared to
its value as of December 31, 2001. We recorded a credit in stock-based
compensation for the year ended December 31, 2001 as the market price of our
common stock declined in 2001 as compared to its value as of December 31, 2000.
In the first quarter of 2002, we rescinded the applicable option exercise
provisions that resulted in variable option accounting treatment for such
options in our financial statements requiring the outstanding grant of options
to be marked-to-market at each reporting period.

In the first quarter of 2002, we canceled outstanding options totaling 2,093,334
shares at exercise prices of $6.50 to $13.50 and, in their place, granted new
options totaling 1,046,667 shares at an exercise price of $2.00 per share, which
was above the market value of such shares at the time of grant. All the grantees
were employees whose salary compensation had been reduced in conjunction with
our restructuring efforts in the second half of 2001. However, the executive
officers whose salary compensation was reduced were not eligible to participate.

The newly granted options will be subject to variable option accounting
treatment. That is, if the closing market price of our common stock is greater
than $2.00 per share at any reporting date, we will recognize a non-cash
compensation expense equal to the difference between such market price and $2.00
multiplied by the number of outstanding option shares subject to variable
accounting treatment. To the extent that we are carrying an accrued expense of
this type at any given reporting date and there is a decline in the market price
of our stock at the end of the subsequent reporting period, we will recognize a
reduction in expense for the subsequent period. Our December 31, 2002
consolidated financial statements reflect no expense related to the 1,046,667
variable options, since the closing market price of our common stock at December
31, 2002 was less than the option exercise price of $2.00 per share.

We adopted SFAS No. 142 beginning on January 1, 2002. We completed the
transitional goodwill impairment test as required by SFAS No. 142 using a
measurement date of January 1, 2002, and no impairment was noted at the date of
adoption. We will continue to perform future impairment tests as required by
SFAS No. 142.

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("generally accepted
accounting principles") requires us to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Our
actual results could differ from these estimates.





                                       14
<PAGE>


Impact of Inflation

Inflation has not had any significant effect on our operating costs.

New Accounting Pronouncements

As of August 2001, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 143, "Accounting for Obligations Associated with the Retirement of
Long-Lived Assets", which is effective for financial statements issued for
fiscal years beginning after June 15, 2002. The objective of SFAS No. 143 is to
provide accounting guidance for legal obligations associated with retirement of
long-lived assets. The retirement obligations included within the scope of this
pronouncement are those that an entity cannot avoid as a result of the
acquisition, construction or normal operation of a long-lived asset. Components
of larger systems also fall under this pronouncement, as well as tangible
long-lived assets with indeterminable lives. We do not believe that that the
adoption of SFAS No. 143 will impact our financial condition, cash flows and
results of operations. We plan to adopt SFAS No. 143 during the first quarter of
2003.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of
Disposal of Long-Lived Assets", which is effective for financial statements
issued for fiscal years beginning after December 15, 2001. The objectives of
SFAS No. 144 are to address significant issues relating to the implementation of
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", and to develop a single accounting model,
based on the framework established in SFAS No. 121, for long-lived assets to be
disposed of by sale, whether previously held and used or newly acquired. We
adopted SFAS No. 144 during the first quarter of 2002.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", effective for exit or disposal activities
initiated after December 31, 2002. SFAS No. 146 addresses the financial
accounting and reporting for certain costs associated with exit or disposal
activities, including restructuring actions. SFAS No. 146 excludes from its
scope severance benefits that are subject to an on-going benefit arrangement
governed by SFAS No. 112, "Employer's Accounting for Post-employment Benefits",
and asset impairments governed by SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. We do not believe that the adoption of this
Statement will have a material impact on our consolidated financial position or
results of operations.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness
of Others", ("FIN 45"). FIN 45 is effective for guarantees issued or modified
after December 31, 2002. The disclosure requirements were effective for the year
ending December 31, 2002, which expand the disclosures required by a guarantor
about its obligations under a guarantee. FIN 45 also requires the recognition,
at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in the issuance of the guarantee. This interpretation did
not have any significant impact on our consolidated financial position and
results of operations.

In November 2002, the Emerging Issues Task Force ("EITF") of the FASB reached a
consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables."
EITF Issue 00-21 addresses certain aspects of the accounting by a vendor for
arrangements under which the vendor will perform multiple revenue generating
activities. The EITF will be effective for fiscal years beginning after June 15,
2003. We are currently evaluating the effects of this EITF may have on our
consolidated financial position and operating results.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123". SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. This
Statement permits two additional transition methods for entities that adopt the
preferable method of accounting for stock-based employee compensation. Both of
those methods avoid the ramp-up effect arising from prospective application of
the fair value based method. In addition, to address concerns raised by some
constituents about the lack of comparability caused by multiple transition
methods, this Statement does not permit the use of the original Statement 123
prospective method of transition for changes to the fair value based method made
in fiscal years beginning after December 15, 2003. SFAS No. 148 shall be
effective for the financial statements for fiscal years ending after December
15, 2002 for companies that volunteer in changing to the fair value method of
accounting for stock options and like awards. The interim disclosure
requirements of SFAS No. 148 for financial reports containing condensed
financial statements become effective beginning after December 15, 2002. We have
adopted the disclosure provisions of this Statement for the year ended December
31, 2002. As such, this Statement did not have an impact on the our consolidated
financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities", ("FIN 46"). FIN 46 requires that companies that
control another entity through interests other than voting interests should
consolidate the controlled entity. FIN 46 applies to variable interest entities
created after January 31, 2003, and to variable interest entities in which an
enterprise obtains an interest in after that date. The related disclosure
requirements are effective immediately. We do not anticipate that this
interpretation will have a significant impact on our consolidated financial
position and results of operations.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

Our interest income is affected by changes in the general level of U.S. interest
rates. Changes in U.S. interest rates could affect the interest earned on our
cash equivalents and investments. Currently, changes in U.S. interest rates
would not have a material effect on the interest earned on our cash equivalents
and investments. A majority of these cash equivalents and investments earn a
fixed rate of interest while the remaining portion earns interest at a variable
rate. We do not anticipate that exposure to interest rate market risk will have
a material impact on us due to the nature of our investments.



                                       15
<PAGE>

During April 2000, we received a warrant to acquire 2,500,000 shares of Ascent
Media Group, a publicly traded company. The warrant becomes exercisable at the
rate of 500,000 shares per year, commencing on April 13, 2001, includes certain
registration rights and may be exercised until March 31, 2015. The warrant is
non-forfeitable and fully vested (as the term "vesting" is used by the Financial
Accounting Standards Board in its EITF 00-8: Accounting by a Grantee for an
Equity Instrument to Be Received in Conjunction with Providing Goods or
Services). The warrant is not transferable, except in certain circumstances. We
estimated the value of the warrant to be $76,016,175 at the date it was
received, using the Black-Scholes pricing model, with a risk free rate of 6.5%,
a volatility of 80% and assuming no cash dividends. The estimated value of the
warrant at December 31, 2000 was $17.3 million, using the same assumptions.
Beginning January 1, 2001, we record changes in the fair value of the investment
in warrant to the statement of operations as the result of our adoption of SFAS
No. 133. The estimated fair value of the warrant at December 31, 2002 was $2.7
million. We expect the value of the warrant to fluctuate based on the underlying
stock price of Ascent Media Group. We do not currently expect to exercise or
register shares in the coming year.

We recorded stock-based compensation expense resulting from increases and
decreases in the market price of our common stock above the exercise price of
certain employee options, which were subject to variable option accounting
treatment. To the extent that we had a stock-based compensation obligation at
the beginning of a given reporting period, we recognized a reduction in
stock-based compensation expense related to unexercised variable options for
that period as a function of a reduction of the market price for our common
stock at the end of the period. The obligation would increase as the market
price for our common stock increases at the end of a reporting period.

Item 8.  Financial Statements and Supplementary Data

The Financial Statements are listed under Item 15 in this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.






                                       16
<PAGE>


                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

The following is a listing of our current directors and executive officers,
including biographical information for each person.

Directors

David Reese, (47), Director since 1992. Chairman of the Board since July 2001,
Chief Executive Officer since June 2001 and President since February 1999. Mr.
Reese is also President of ACTV Entertainment, Inc., a subsidiary of ours. He
has been employed by us since December 1988, and served as our Vice President of
Finance from September 1989 through November 1993 and Chief Operating Officer
from February 1999 to July 2001. Mr. Reese is the chair of the advisory board of
Pennsylvania State University's School of Information Science and Technology. He
has a B.S. from Pennsylvania State University.

William C. Samuels, (60), Director since August 1989, Chairman of the Board from
November 1994 to July 2001, Chief Executive Officer from August 1993 to June
2001. Mr. Samuels is currently employed by us as an advisor on intellectual
property and general corporate matters. He is a trustee of Howard J. Samuels
Institute at City College in New York, New York and is Chairman of Light
Modulation Inc., a technology start-up. Mr. Samuels received a J.D. from Harvard
Law School and a B.S. from the Massachusetts Institute of Technology.

John C. Wilcox, (60), Director since July 2000, is Vice Chairman of Georgeson
Shareholder Communications Inc., a firm specializing in corporate governance,
proxy solicitation and other services to publicly-traded companies. Mr. Wilcox
has been with Georgeson for 28 years. He is Vice Chairman of the Board of
Trustees of the Woodrow Wilson National Fellowship Foundation, and a trustee of
Bennington College. He received a B.A. from Harvard College, an M.A. from the
University of California, Berkeley, a J.D. from Harvard Law School and an LL.M
degree from the New York University Graduate School of Law.

Dr. James B. Thomas, (50), Director since May 2002. Dr. Thomas has been dean of
the School of Information Sciences and Technology (IST) at Pennsylvania State
University since July 1999. Prior to that, he served as senior associate dean of
The Smeal College of Business Administration. Dr. Thomas joined Penn State in
1987, after having been at the University of Texas at Austin and Florida State
University. Previously, he served as the director responsible for information
technology strategic planning for the Office of the Texas Secretary of State. In
addition to his position as the IST's dean, Dr. Thomas holds the academic rank
of professor of information sciences, technology and management. He received a
bachelor's degree from Penn State in pre-law, a master's degree in government
from Florida State University and a doctorate in strategic management from the
University of Texas at Austin.

Michael J. Pohl, (52), Director since 2001. Mr. Pohl is President of nCUBE
Corporation, a worldwide leader in providing streaming media solutions for all
broadband networks. Mr. Pohl was formerly President and CEO of SkyConnect, Inc.
and was named President of nCUBE in July 1999 when nCUBE acquired SkyConnect.
Prior to joining SkyConnect, Mr. Pohl served as Senior Vice President for
Douglas Communications Corp. II ("DCC II"), one of the nation's leading cable
operators. At DCC II, he oversaw acquisitions, divestitures, new ventures,
programming, marketing and re-franchising activities. Prior to joining DCC II,
Mr. Pohl was Senior Vice President of Corporate Development for Tribune Cable
Communications from 1981 to 1986, where he administered government, corporate
and media relations. Mr. Pohl previously served as Director of the White House
Media Advance Office under President Jimmy Carter.

Executive Officers

David Reese (47) Chairman, President and Chief Executive Officer (see
biographical information above)

Bruce Crowley (45) Executive Vice President. Mr. Crowley has served as President
of ACTV Enhanced Media Services, Inc. since July 2000 and President of HyperTV
Networks, Inc. since December 1995. Prior thereto, he had been employed by KDI
Corporation since 1988, and was most recently responsible for KDI Corporation's
education division. Mr. Crowley has a B.A. from Colgate University (1979) and an
M.B.A. from Columbia University (1984).

Joel Hassell (42) Chief Operating Officer. Mr. Hassell, who has served as our
Chief Operating Officer since 2001, was a founder and the Chief Executive
Officer of Intellocity, Inc. which ACTV acquired in March 2000. He previously
held management positions at United Technologies and General Electric and
executive positions at McGraw-Hill and TV Guide. Mr. Hassell has a B.S. from
Western State University and a law degree from the University of Denver.

Christopher C. Cline (52) Chief Financial Officer. Mr. Cline has served as our
Chief Financial Officer from November 1993 to July 2000, and from April 2001.
Mr. Cline also served as Senior Vice President-Business Development from
December 1999 to April 2001. Mr. Cline was formerly a Vice President of
International Trade and Finance Corp., a cross-border financial trading and
consulting company, and prior to that, a Vice President of Citicorp Investment
Bank. He received a B.A. from Haverford College and an M.B.A. from Stanford
University.



                                       17
<PAGE>

Our executive officers serve in such capacities until the next annual meeting of
our board of directors, or until their respective successors have been duly
elected and have been qualified, or until their earlier death, resignation,
disqualification or removal from office.

There is no family relationship between any of the directors, by blood, marriage
or adoption.

Except as set forth herein, no officer or director of ACTV, Inc. has, during the
last five years: (i) been convicted in or is currently subject to a pending a
criminal proceeding; (ii) been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to any federal or
state securities or banking laws including, without limitation, in any way
limiting involvement in any business activity, or finding any violation with
respect to such law, nor (iii) has any bankruptcy petition been filed by or
against the business of which such person was an executive officer or a general
partner, whether at the time of the bankruptcy of for the two years prior
thereto.

Section 16(a) Beneficial Ownership Reporting and Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") requires our officers and directors, and persons who own more than 10% of
our common stock, to file reports of ownership and changes in ownership of our
common stock with the Securities and Exchange Commission. Based solely on a
review of the copies of such reports and written representations from the
reporting persons that no other reports were required, ACTV believes that during
the fiscal year ended December 31, 2002, its executive officers, directors and
greater than ten percent shareholders filed on a timely basis all reports due
under Section 16(a) of the Exchange Act.

Board Composition

Our board of directors currently consists of five directors, divided among three
classes. Our Class I director, whose term will expire at the annual meeting of
our stockholders in 2003, is Dr. James B. Thomas. Our Class II directors, whose
term will expire at the annual meeting of our stockholders in 2004, are David
Reese and Michael J. Pohl. Our Class III directors, whose term will expire at
the annual meeting of our stockholders in 2005, are William C. Samuels and John
C. Wilcox. At each annual meeting of our stockholders, the successors of that
class of directors whose term(s) expire at that meeting shall be elected to hold
office for a term expiring at the annual meeting of our stockholders held in the
third year following the year of their election. The directors of each class
will hold office until their respective death, resignation or removal and until
their respective successors are elected and qualified.

Voting Arrangement

David Reese, our chief executive officer and chairman of our board of directors,
William Samuels, one of our directors, and Bruce Crowley, one of our executive
officers, have signed a voting agreement with OpenTV, pursuant to which each has
agreed to vote all of the shares of common stock of our company held in favor of
the proposed merger with OpenTV Corp. Together, Messrs. Reese, Samuels and
Crowley are entitled to vote approximately 4.3% of our outstanding shares of
common stock.

Committees of the Board

We have a Compensation and Stock Option Committee, which during 2002 consisted
of John Wilcox and Michael Pohl. The Compensation and Stock Option Committee
decides issues relating to compensation and stock options.

We also have an Audit Committee, which during 2002 consisted of John Wilcox,
Michael Pohl, and James Thomas. Our Audit Committee is responsible for reviewing
our audited financial statements management. The Audit Committee discusses with
Deloitte & Touche LLP, our auditors, our audited financial statements, including
among other things the quality of our accounting principles, the methodologies
and accounting principles applied to significant transactions, the underlying
processes and estimates used by our management in our financial statements and
the basis for the auditor's conclusions regarding the reasonableness of those
estimates, in addition to the auditor's independence.

Item 11. Executive Compensation

The following table sets forth all compensation for services rendered in all
capacities to us and our subsidiaries for the fiscal years ended December 31,
2002, December 31, 2001, and December 31, 2000, paid to our Chief Executive
Officer and the three other most highly compensated executive officers (the
"Named Executive Officers") at the end of the above fiscal years whose total
compensation exceeded $100,000 per annum.


                                       18
<PAGE>

(a)      Summary Compensation Table


<TABLE>
<CAPTION>
                                       Annual Compensation                    Long-Term Compensation
                             ----------------------------------      ----------------------------------------------
                                                                     Restricted        Securities
Name and Principal                                                     Stock           Underlying      All Other
Position                     Year         Salary         Bonus         Awards           Options       Compensation
------------------------------------------------------------------------------------------------------------------

<S>                       <C>          <C>          <C>            <C>                <C>             <C>
David Reese (1)              2002         $306,028     $      0       $        0              --         $  12,867
                             2001         $319,575     $      0       $        0          286,000        $   2,719
                             2000         $295,000     $      0       $        0          300,000        $   2,765

Bruce Crowley (2)            2002         $292,058     $      0       $        0             --          $  13,695
                             2001         $294,514     $      0       $        0          174,000        $   2,400
                             2000         $295,000     $      0       $  202,943          200,000        $   2,548

Joel Hassell (3)             2002         $220,000     $      0       $        0              --              --
                             2001         $231,818     $      0       $        0             --               --

Christopher Cline (4)        2002         $187,486     $      0       $        0          100,000         $  1,890
                             2001         $187,115     $      0       $        0              --          $  2,070
                             2000         $200,000     $ 75,000       $        0           25,000         $  1,544

William C. Samuels (5)       2002
                             2001         $293,881     $      0       $2,300,000              --          $ 10,400
                             2000         $345,000     $      0       $6,900,000              --          $ 10,400
</TABLE>

(1) Mr. Reese has served as our Chairman of the Board and Chief Executive
Officer since July 2001 and June 2001, respectively. Mr. Reese has also served
as our President since February 1999; prior to that, he served as our Chief
Operating Officer from February 1999 to July 2001. Mr. Reese has been President
of ACTV Entertainment since 1994. Previously, he was our Vice President of
Finance from September 1989 through November 1992. Mr. Reese's "other
compensation" for 2002 relates to payments of life insurance premiums and
reimbursement for a leased vehicle. Mr. Reese's "other compensation" for 2001
and 2000 relates to payments of life insurance premiums.

(2) Mr. Crowley has served as President of HyperTV Networks, Inc. since December
1995. Mr. Crowley's "other compensation" for 2002 relates to payments of life
insurance premiums and reimbursement for a leased vehicle. Mr. Crowley's "other
compensation" for 2001 and 2000 relates to payments of life insurance premiums.

(3) Mr. Hassell has served as our Chief Operating Officer since August 2001.

(4) Mr. Cline has served as our Chief Financial Officer from November 1993 to
July 2000, and from April 2001. Mr. Cline also served as Senior Vice
President-New Business Development from December 1999 to April 2001. Mr. Cline's
"other compensation" for 2002, 2001, and 2000 relates to payments of life
insurance premiums.

(5) Mr. Samuels served as Chairman of the Board from November 1994 to July 2001
and Chief Executive Officer from August 1993 to June 2001. Mr. Samuels is
currently employed by us as an advisor on intellectual property and general
corporate matters. Mr. Samuels has also served as a Director of ACTV since
August 1, 1989. Mr. Samuels' "other compensation" for 2001 and 2000 relates to
payments of life insurance premiums. The restricted stock awards were based upon
the market price of the common stock during the first quarter of each year
reported. Further, such shares were subject to forfeiture and other restrictions
pursuant to Mr. Samuels' employment agreement.

(b) Options Grants to Named Executive Officers in Last Fiscal Year

The following table sets forth certain information with respect to all
outstanding stock options issued during 2002 to our Named Executive Officers.


                                       19
<PAGE>

Individual Grants

<TABLE>
<CAPTION>

                          Number of      Percent of Total                               Potential Realizable Value
                         Securities      Options Granted                                At Assumed Annual Rates of
                         Underlying      to Employees In    Exercise      Expiration      Price Appreciation for
Name                   Options Granted     Fiscal Year        Price          Date               Option Term
----                   ---------------   ---------------    ---------     ----------    -----------------------------
                                                                                               5%          10%
                                                                                        -------------   ---------
<S>                    <C>                       <C>           <C>           <C> <C>        <C>          <C>
Christopher Cline      100,000                   11.6%         $1.40         5/6/07         23,386       66,199
</TABLE>


(c)      Aggregated Option Exercises and Fiscal year-end values

The following table sets forth for the Named Executive Officers certain
information with respect to exercises of stock options during 2002 and year-end
2002 stock option holdings. (1)

<TABLE>
<CAPTION>
                                 Shares                    Number of Unexercised          Value of Unexercised
                            Acquired on         Value      In-The-Money Options           In-The-Money Options
Name                       Exercise (#)      Realized   (Exercisable/Unexercisable)    (Exercisable/Unexercisable)
                           ------------      --------   ---------------------------    ---------------------------
<S>                        <C>               <C>        <C>                            <C>
David Reese                   --                 --           0/0                            0/0
Bruce Crowley                 --                 --           0/0                            0/0
Joel Hassell                  --                 --           271,362/0                      $124,827/0
Christopher Cline             --                 --           0/0                            0/0
</TABLE>

(1)      The closing bid price of a share of our common stock at December 31,
         2002 was $0.70 The exercise prices of the options held by Named
         Executive Officers at December 31, 2002 range from $0.24 to $13.50.

(d)      Compensation of Directors

Non-employee directors may be paid an honorarium for attending meetings of our
board of directors, in an amount that our management anticipates will not exceed
$10,000 per year. Each non-employee director received a $10,000 fee for his
service in 2002.

(e)      Employment Agreements

ACTV and Mr. Reese entered into an employment agreement in August 1995, as most
recently amended in March 2002. Mr. Reese currently serves as our Chairman of
the Board, Chief Executive Officer and President, and receives an annual salary
of $300,000. Mr. Reese's employment agreement contains non-competition
provisions pursuant to which he has agreed not to engage in a business that is
competitive with us during the term of his employment agreement and for one year
thereafter.

Mr. Reese's employment agreement contains a change of control provision whereby,
in certain circumstances, including the possibility that a person becomes the
owner of 30% or more of the outstanding securities of the employer, then all
stock options granted to Mr. Reese shall become vested and exercisable and, at
his option, he shall receive a special compensation payment for the exercise
cost of all vested options upon exercising those options any time within twelve
months after the effective date of the change of control. Additionally, if at
any time within three years of said change of control Mr. Reese is not retained
as our Chief Executive Officer and President, Mr. Reese will receive a bonus
equal on an after-tax basis to two times his average compensation for the
previous two years, but not to exceed 2.7 times his average compensation for
such years.

Mr. Reese currently holds fully vested options to purchase 694,000, 856,000,
225,000 and 150.000 shares of our common stock at exercise prices of $1.50,
$1.60, $2.50 and $7.00 per share, respectively, and options to purchase 300,000
shares at exercise prices of $7.00 per share, which are not currently vested.

ACTV and Mr. Samuels entered into an employment agreement in July 2001 pursuant
to which Mr. Samuels is employed by ACTV as an advisor on intellectual property
and general corporate matters and receives an annual salary of $200,000. Mr.
Samuels' employment agreement contains non-competition provisions pursuant to
which he has agreed not to engage in a business that is competitive with us
during the term of his employment agreement and for one year thereafter.

Mr. Samuels currently holds fully vested options to purchase 2,835,000 shares of
our common stock at exercise prices of $1.50 and $1.60 per share.



                                       20
<PAGE>

ACTV and Mr. Crowley entered into an employment agreement in August 1995, as
amended in January 2001. Mr. Crowley serves as President of HyperTV Networks,
Inc. Mr. Crowley currently receives an annual salary of $275,000. Mr. Crowley's
employment agreement contains non-competition provisions pursuant to which he
has agreed not to engage in a business that is competitive with us during the
term of his employment agreement and for one year thereafter.

Mr. Crowley's employment agreement contains a change of control provision
whereby, in certain circumstances, including the possibility that a person
becomes the owner of 30% or more of the outstanding securities of the employer,
then all stock options granted to Mr. Crowley shall become vested and
exercisable and, at his option, he shall receive a special compensation payment
for the exercise cost of all vested options upon exercising those options any
time within twelve months after the effective date of the change of control.
Additionally, if at any time within three years of said change of control Mr.
Crowley is not retained or a new Chief Executive Officer is appointed Mr.
Crowley will receive a bonus equal on an after-tax basis to two times his
average compensation for the previous two years, but not to exceed 2.7 times his
average compensation for such years.

Mr. Crowley currently holds fully vested options to purchase 384,000, 521,000,
150,000 and 100.000 shares of our common stock at exercise prices of $1.50,
$1.60, $2.50 and $7.00 per share, respectively, and options to purchase 100,000
shares at exercise prices of $7.00 per share, which are not currently vested.

ACTV and Mr. Hassell entered into an employment agreement in March 2000. Mr.
Hassell serves as our Chief Operating Officer. Mr. Hassell currently receives an
annual salary of $220,000. Mr. Hassell's employment agreement contains
non-competition provisions pursuant to which he has agreed not to engage in a
business that is competitive with us during the term of his employment agreement
and for one year thereafter.

Mr. Hassell currently holds fully vested options to purchase 271,362 shares of
our common stock at an exercise price of $0.24 per share.

ACTV and Mr. Cline entered into an employment agreement in August 1995, as
amended in January 2002. Mr. Cline, who serves as our Chief Financial Officer,
currently receives an annual salary of $200,000. Mr. Cline's employment
agreement contains non-competition provisions pursuant to which he agreed not to
engage in a business that is competitive with us during the term of his
employment agreement and for one year thereafter.

Mr. Cline's employment agreement contains a change of control provision whereby,
in certain circumstances, including the possibility that a person becomes the
owner of 30% or more of the outstanding securities of the employer, then all
stock options granted to Mr. Cline shall become vested and exercisable and, at
his option, he shall receive a special compensation payment for the exercise
cost of all vested options upon exercising those options any time within twelve
months after the effective date of the change of control. Additionally, if at
any time within three years of said change of control Mr. Cline is not retained
in his immediately prior position or a substantially similar position, Mr. Cline
will receive a bonus equal on an after-tax basis to his current annual base
salary.

Mr. Cline currently holds 40,000 and 66,667 fully vested options to purchase
shares of common stock at $6.50 and $9.00 per share, respectively, and options
to purchase 100,000 and 25,000 shares of common stock at exercise prices of
$1.40, and $13.50 per share, respectively, which are not currently vested.

At the time of issuance, all options to our employees were granted at an
exercise price equal to or greater than the prevailing market price for our
common stock.

(f)      Compensation Committee Interlocks and Insider Participation

The Compensation Committee of the Board of Directors ("Compensation Committee")
is responsible for making all compensation decisions with respect to the
executive officers of the Company. The Committee is composed of John C. Wilcox
and Michael J. Pohl, who were elected to the Committee in July 2000 and July
2001, respectively. In 1999, the Committee retained the independent compensation
consulting firm of Lyons, Benenson & Company Inc. ("LB & Co.") to review and
evaluate the Company's compensation structure and policies. Following that
review, LB & Co. advised the Company that its compensation structure and
policies are appropriate and competitive as compared with those of similarly
situated companies.

(g)      Board Compensation Committee Report on Executive Compensation

Our executive compensation policy is designed to attract, motivate, reward and
retain the key executive talent necessary to achieve our business objectives and
contribute to our long-term success. In order to meet these goals, our
compensation policy for our executive officers focuses primarily on determining
appropriate salary levels and providing long-term stock-based incentives. To a
lesser extent, our compensation policy also contemplates performance-based cash
bonuses. Our compensation principles for the Chief Executive Officer are
identical to those of our other executive officers.



                                       21
<PAGE>

Cash Compensation. In determining our recommendations for adjustments to
officers' base salaries for fiscal 2002, we focused primarily on the scope of
each officer's responsibilities, each officer's contributions to our success in
moving toward our long-term goals during the fiscal year, the accomplishment of
goals set by the officer and approved by our board of directors for that year,
our assessment of the quality of services rendered by the officer, comparison
with compensation for officers of comparable companies and an appraisal of our
financial position. In certain situations, relating primarily to the completion
of important transactions or developments, we may also pay cash bonuses, the
amount of which will be determined based on the contribution of the officer and
the benefit to us of the transaction or development.

Equity Compensation. The grant of stock options to our executive officers
constitutes an important element of long-term compensation for our executive
officers. The grant of stock options increases management's equity ownership in
our company with the goal of ensuring that the interests of management remain
closely aligned with our stockholders. We believe that stock options provide a
direct link between executive compensation and stockholder value. By attaching
vesting requirements, stock options also create an incentive for executive
officers to remain with us for the long term.

For the fiscal year ended December 31, 2002, we issued no options to David
Reese, our chief executive officer.

(h)      Performance Graph

                  COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
            AMONG ACTV, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX,
                       THE JP MORGAN H&Q TECHNOLOGY INDEX
                     AND THE RDG TECHNOLOGY COMPOSITE INDEX

<TABLE>
<CAPTION>
                                                                      Cumulative Total Return
                                       ---------------------------------------------------------------------------------------
                                           12/97         12/98          12/99          12/00          12/01          12/02
                                       ------------   ------------   ------------   ------------   ------------   ------------
<S>                                    <C>            <C>           <C>             <C>            <C>             <C>
ACTV INC                                     100.00         234.62        2811.57         261.54         115.08          43.08
NASDAQ STOCK MARKET (U.S.)                   100.00         140.99         261.48         157.77         125.16          86.53
JP MORGAN H&Q TECHNOLOGY                     100.00         155.54         347.38         224.57         155.23            N/A
RDG TECHNOLOGY COMPOSITE                     100.00         176.09         348.88         216.36         158.21          92.38
</TABLE>

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters

(a)      Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information as of March 26, 2003, relating to the
beneficial ownership of our common stock by (a) each beneficial owner of 5% or
more of our outstanding common stock, based upon information filed by such
owners with the Securities and Exchange Commission; (b) each of our directors;
(c) each of our named executive officers, as defined under the Securities
Exchange Act of 1934; and (d) all directors and executive officers as a group.
The table does not include options that are not exercisable within 60 days of
March 26, 2003:


<TABLE>
<CAPTION>
Name and Address of  Beneficial Owner (1)         Number of Shares                Percent of Class
-----------------------------------------         ----------------                ----------------
<S>                                              <C>                              <C>
Liberty Media Corporation                            8,805,000                        15.8%
12300 Liberty Boulevard
Englewood, CO 80012
William C. Samuels                                   4,235,444 (2)                     7.6%
David Reese                                          2,514,961 (3)                     4.5%
Bruce J. Crowley                                     1,557,289 (4)                     2.8%
Joel Hassell                                           952,224 (5)                     1.7%
Christopher C. Cline                                   637,245 (6)                     1.1%
John C. Wilcox                                          61,000 (7)                        *
Michael J. Pohl
                                                             0
James B. Thomas
                                                             0

All officers and directors as a group (2-7)          9,958,163                        17.8%
</TABLE>

 *Indicates less than 1% of the total shares outstanding.

(1)      Unless otherwise indicated, the address of each beneficial owner is c/o
         ACTV, Inc., 233 Park Avenue South, 10th Floor, New York, New York
         10003-1604.

(2)      Includes options to purchase 2,835,000 shares that are presently
         exercisable or that become exercisable within 60 days of the date of
         this report.

(3)      Includes options to purchase 1,925,000 shares that are presently
         exercisable or that become exercisable within 60 days of the date of
         this report.

(4)      Includes options to purchase 1,155,000 shares that are presently
         exercisable or that become exercisable within 60 days of the date of
         this report.

(5)      Includes options to purchase 271,362 shares that are presently
         exercisable or that become exercisable within 60 days of the date of
         this report.

(6)      Includes options to purchase 106,667 shares that are presently
         exercisable or that become exercisable within 60 days of the date of
         this report; also includes 452,360 shares of our common stock held by
         our 401(k) Plan, of which Mr. Cline is the trustee.

(7)      Includes options to purchase 60,000 shares that are presently
         exercisable or that become exercisable within 60 days of the date of
         this report; also includes 1,000 shares owned by Mr. Wilcox's wife.


                                       22
<PAGE>

(b) Change in Control

The voting agreement

David Reese, our chief executive officer and chairman of our board of directors,
William Samuels, one of our directors, and Bruce Crowley, one of our executive
officers, have signed a voting agreement with OpenTV, pursuant to which each has
agreed to vote all of the shares of common stock of our company held in favor of
the proposed merger with OpenTV Corp. Together, Messrs. Reese, Samuels and
Crowley are entitled to vote approximately 4.3% of our outstanding shares of
common stock. The following is a summary of the material terms and conditions of
the voting agreement.

Delivery of Proxies

Under the voting agreement, David Reese, William Samuels and Bruce Crowley each
have delivered to OpenTV an irrevocable proxy, which will allow OpenTV to vote
each of those stockholder's shares:

         o        in favor of adoption of the merger agreement;

         o        against any action, approval or agreement that would compete
                  with, materially impede, adversely affect, discourage or delay
                  the merger with OpenTV, including any alternative acquisition
                  proposal;

         o        against any action, approval or transaction that would result
                  in a material breach of ACTV's representations, warranties,
                  covenants or agreements in the merger agreement; and

         o        against any other merger, consolidation, business combination,
                  reorganization, recapitalization, liquidation or sale or other
                  transfer of any material assets of ACTV.

In addition, each of Messrs. Reese, Samuels and Crowley has agreed under the
voting agreement:

         o        to revoke all previous proxies and not to grant any other
                  proxies or powers of attorney or enter into any other voting
                  agreement with respect to his shares of ACTV common stock;

         o        not to solicit, encourage or initiate any action that would
                  compete with, materially impede, interfere with or adversely
                  affect the merger with OpenTV;

         o        not to transfer, sell, pledge or otherwise dispose of his
                  shares of ACTV common stock or securities convertible into or
                  exchangeable for ACTV common stock, including depositing
                  shares into a voting trust; and

         o        not to acquire any additional shares of ACTV common stock
                  unless that stockholder delivers a similar proxy to OpenTV
                  with respect to the shares of that newly acquired ACTV common
                  stock.

Notwithstanding the agreements described above, nothing in the voting agreement
restricts Messrs. Reese and Samuels from exercising their fiduciary duties as a
director of ACTV.

The voting agreement terminates upon the earlier to occur of the consummation of
the merger and the termination of the merger agreement. The merger agreement has
not been terminated.

(c)      Securities Authorized for Issuance Under Equity Compensation Plans

<TABLE>
<CAPTION>
                                                                                                     Number of securities
                                                 Number of securities     Weighted-average price     available for future
                                              issued upon exercise of          exercise price of           issuance under
                                                 outstanding options,        outstanding options           equity compen-
                                                  warrants and rights        warrants and rights             sation plans

Equity compensation plans approved
by security holders

<C>                                            <C>                        <C>                        <C>
1989 Non-qualified Stock Option Plan                                0                        N/A                        0
1996 Qualified Stock Option Plan                               55,000                      $2.69                   67,121
1998 Qualified Stock Option Plan                              434,000                      $4.04                  274,669
1999 Qualified Stock Option Plan                              875,000                      $4.97                  442,123
2000 Qualified Stock Option Plan                            1,931,750                      $5.56                2,038,143
Options issued outside of formal option plans               6,773,011                      $1.61                      N/A
</TABLE>

Item 13. Certain Relationships and Related Transactions

In September 1998, Liberty Media invested $5 million in ACTV in return for
2,500,000 shares of our common stock and an option to purchase an additional
2,500,000 shares at an exercise price of $2.00 per share. Also in September
1998, ACTV and Liberty Media created LMC IATV Events, LLC to license and produce
individualized, marquee, national or international pay-per-view events. In
connection with this venture, we granted LMC IATV Events an exclusive license to
produce and distribute pay-per-view events that incorporate our individualized
programming enhancements.

                                       23
<PAGE>

In June 1999, Liberty Media exercised its warrant to purchase 2,500,000 shares
of our common stock for an aggregate exercise price of $5 million. Liberty Media
also purchased an additional 500,000 shares of our common stock and warrants,
which, if fully exercised, would require Liberty Media to invest an additional
$90 million in ACTV. The aggregate purchase price Liberty Media paid for these
warrants and the 500,000 shares was $4 million. The warrants were fully vested,
had a weighted average exercise price of $12.00 and were to expire in three
equal tranches in March 2000, 2001 and 2004. On March 28, 2000, Liberty Media
exercised warrants for 2,500,000 shares of our common stock for an aggregate
purchase price of $20 million. The second tranche expired unexercised in March
2001, and, as a result, the third tranche expired simultaneously. In connection
with these transactions, we granted Liberty Media customary registration rights
for the shares of our common stock acquired by Liberty Media (including upon
exercise of the warrants) and Liberty Media agreed that it would not acquire
securities of ours except to the extent that immediately after such acquisition,
Liberty Media's beneficial ownership of ACTV would not exceed 26% of the
outstanding shares of our common stock.

In connection with Liberty Media's purchases of our common stock in 1998, 1999
and 2000, Liberty Media acquired the right to nominate a proportionate number of
members to our board of directors equal to the percentage of outstanding shares
of our common stock it actually owned. We agreed to use our reasonable best
efforts to cause Liberty Media's nominees, if any, to be elected to our board of
directors. To date, Liberty Media has not exercised its right to have a designee
nominated to our board of directors.

Based on the most recent Schedule 13D filed with the SEC by Liberty Media with
respect to us, Liberty Media is the beneficial owner of 8,805,000 shares of our
common stock. Based on 55,881,047 shares of our common stock issued and
outstanding at March 26, 2003, Liberty Media beneficially owns approximately
15.8% of the issued and outstanding shares of our common stock, calculated
pursuant to Rule 13d-3 promulgated under the Securities and Exchange Act of
1934, as amended. Liberty Media has advised us that it intends to vote the
shares of our common stock it beneficially owns in favor of the proposed merger
of ACTV with OpenTV Corp, although it is under no obligation to do so.

In April 2000, we entered into an agreement with Ascent Media Group, Inc.
(formerly Liberty Livewire Corp.), a unit of Liberty Media, to jointly market
HyperTV With Livewire, which offers a turnkey system for synchronizing Web
content and television programming. The agreement gives Ascent Media the right
to provide content creation services to HyperTV With Livewire clients. In
exchange for a license of HyperTV technology to Ascent Media in connection with
the joint marketing arrangement, we received a warrant to purchase 2,5500,000
shares of ascent Media Series A common stock, exercisable at $30.00 per share.
To date, we have not exercised in of such warrant shares.

All current transactions between the ACTV and its officers, directors and
principal stockholders or any affiliates have been and are effectuated on terms
no less favorable to us than could be obtained from unaffiliated third-parties.

                                     PART IV

Item 14.  Controls and Procedures:
(a) Evaluation of Disclosure Controls and Procedures.

Our Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures (as such term is defined
in Rules 13a-14(c) and 15d-14(c) under the Securities and Exchange Act of 1934,
as amended (the "Exchange Act")) as of a date within 90 days prior to the filing
date of Form 10-K filed for the year ended December 31, 2002 (the "Evaluation
Date"). Based on such evaluation, such officers have concluded that, as of the
Evaluation Date, our disclosure controls and procedures are effective in
alerting them on a timely basis to material information relating to us
(including our wholly owned subsidiaries) required to be included in our reports
filed or submitted under the Exchange Act.

(b) Changes in Internal Controls.

Since the Evaluation Date, there have not been any significant changes in our
internal controls or in other factors that could significantly affect such
controls.


Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K:

           (a)1. FINANCIAL STATEMENTS:

           See the Consolidated Financial Statements beginning on Page F-1
           hereafter, which is incorporated by reference.


                                       21
<PAGE>


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
ACTV, Inc.
New York, New York

We have audited the accompanying consolidated balance sheets of ACTV, Inc. and
subsidiaries (the "Company") as of December 31, 2002 and 2001, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2002. Our
audits also included the financial statement schedule at Part IV, Item 15.(a)2.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2002
and 2001, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.

As described in Note 2 to the consolidated financial statements, as of January
1, 2002, the Company changed its method of accounting for goodwill and
intangible assets to conform to Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets".


/s/ Deloitte & Touche LLP

Stamford, Connecticut
March 25, 2003



                                       F-1
<PAGE>


                           ACTV, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                December 31,
                                                      ------------------------------
                                                            2002              2001
                                                      -------------    -------------
<S>                                                   <C>              <C>
ASSETS
Current assets:
Cash and cash equivalents                             $  23,813,611    $  69,035,707
Short-term investments                                   23,997,246        8,951,695
Accounts receivable-- net                                 1,947,866        1,319,805
Other                                                     1,932,721        1,696,617
                                                      -------------    -------------

Total current assets                                     51,691,444       81,003,824
                                                      -------------    -------------

Property and equipment-net                                3,578,176        6,344,631

Other assets:
Restricted cash                                             484,913          484,913
Investment in warrant                                     2,655,681       16,255,355
Investments-other                                         5,783,697        7,397,776
Patents and patents pending                               8,835,376        8,425,889
Software development costs                                4,730,223        5,310,100
Goodwill                                                    935,701       12,935,701
Other                                                        79,961        1,429,132
                                                      -------------    -------------
Total other assets                                       23,505,552       52,238,866
                                                      -------------    -------------

         Total                                        $  78,775,172    $ 139,587,321
                                                      =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses                 $     944,179    $   5,664,088
Deferred revenue                                          3,879,960        4,068,450
                                                      -------------    -------------

Total current liabilities                                 4,824,139        9,732,538

Deferred revenue                                         63,346,826       66,966,638
Minority interest                                           366,940        3,215,652
Stockholders' equity:
Common stock, $0.10 par value, 200,000,000 shares
authorized: issued and outstanding 55,877,545 at
December 31, 2002, 55,881,938 at December 31, 2001        5,587,755        5,588,194
Notes receivable from stock sales                           (82,999)        (339,035)
Additional paid-in capital                              311,392,444      317,496,700
Accumulated deficit                                    (306,659,933)    (263,073,366)
                                                      -------------    -------------
Total stockholders' equity                               10,237,267       59,672,493
                                                      -------------    -------------

         Total liabilities and stockholders' equity   $  78,775,172    $ 139,587,321
                                                      =============    =============
</TABLE>

                 See notes to consolidated financial statements


                                       F-2



<PAGE>


                           ACTV, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                    Years ended December 31,
                                                         -----------------------------------------------
                                                              2002              2001              2000
                                                         -------------    -------------    -------------
<S>                                                      <C>              <C>              <C>
Revenue                                                  $  11,286,756    $  13,688,615    $   8,016,453

Costs and expenses:
Selling, general and administrative                         32,549,421       46,580,939       45,714,082
Depreciation and amortization                                5,203,094        5,865,671        3,481,259
Amortization of goodwill                                          --          3,567,955          426,372
Loss on write-down of goodwill                              12,000,000       11,247,725             --
Restructuring charge                                              --          6,591,223             --
Stock-based compensation income                             (6,002,831)     (12,148,504)    (186,673,365)
                                                         -------------    -------------    -------------

Total costs and expenses                                    43,749,684       61,705,009     (137,051,652)
                                                         -------------    -------------    -------------

(Loss)/income from operations                              (32,462,928)     (48,016,394)     145,068,105
                                                         -------------    -------------    -------------

Interest income                                              1,277,323        4,180,923        7,726,929
Interest expense                                                  --               --           (284,619)
                                                         -------------    -------------    -------------

Interest-net                                                 1,277,323        4,180,923        7,442,310

Other expense                                              (15,249,674)      (2,028,623)        (750,000)
                                                         -------------    -------------    -------------

(Loss)/income before minority interest,
extraordinary item and cumulative
effect of accounting change                                (46,435,279)     (45,864,094)     151,760,415

Minority interest-subsidiary                                 2,848,712        3,206,482        1,743,357
                                                         -------------    -------------    -------------

(Loss)/income before extraordinary item and
cumulative effect of accounting change                     (43,586,567)     (42,657,612)     153,503,772

Extraordinary loss on early extinguishment of debt                --               --         (1,411,139)

Cumulative transition effect of adopting SFAS No. 133             --        (58,732,197)            --
                                                         -------------    -------------    -------------

Net (loss)/income                                        $ (43,586,567)   $(101,389,809)   $ 152,092,633
                                                         =============    =============    =============

(Loss)/income per share:

Basic
Before extraordinary item and cumulative
effect of accounting change                              $       (0.78)   $       (0.77)   $        3.10
Extraordinary item                                                --               --              (0.03)
Cumulative effect of accounting change                            --              (1.07)            --
                                                         -------------    -------------    -------------

Basic net (loss)/income per share applicable
to common stockholders                                   $       (0.78)   $       (1.84)   $        3.07
                                                         =============    =============    =============

Diluted
Before extraordinary item and
cumulative effect of accounting change                   $       (0.78)   $       (0.77)   $        2.53
Extraordinary item                                                --               --              (0.02)
Cumulative effect of accounting change                            --              (1.07)            --
                                                         -------------    -------------    -------------

Diluted net (loss)/income per share
applicable to common stockholders                        $       (0.78)   $       (1.84)   $        2.51
                                                         =============    =============    =============


Shares used in basic calculations                           55,918,744       55,014,772       49,501,885
                                                         =============    =============    =============

Shares used in diluted calculations                         55,918,744       55,014,772       60,719,648
                                                         =============    =============    =============

</TABLE>

                 See notes to consolidated financial statements


                                       F-3


<PAGE>


                           ACTV, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000

<TABLE>
<CAPTION>
                                         Common Stock
                                 -----------------------------                     Additional
                                                                 Stockholder        Paid-in-
                                    Shares          Amount           Loan           Capital            Deficit            Total
                                 -------------    -------------    -------------    -------------    -------------    -------------

<S>                             <C>           <C>              <C>              <C>              <C>              <C>
Balances December 31, 1999          42,440,032    $   4,244,004    $    (456,016)   $ 327,609,840    $(311,063,536)   $  20,334,292
                                 =============    =============    =============    =============    =============    =============
Minority interest adjustment              --               --               --          5,864,999             --          5,864,999
Issuance of shares in
   connection with public
   offering                          4,600,000          460,000             --        128,909,468             --        129,369,468
Issuance of shares for services        947,000           94,700             --          7,617,788             --          7,712,488
Issuance of shares in
   connection with exercise of
   stock options & warrants          3,292,089          329,209             --         20,783,812             --         21,113,021
Adjustment to deferred stock
   compensation                           --               --               --       (186,673,365)            --       (186,673,365)
Issuance of common stock for
   401(k) plan                           7,509              751             --            153,809             --            154,560
Issuance of stockholder loans             --               --           (187,590)            --               --           (187,590)
Retirement of common stock             (58,476)          (5,848)            --           (307,636)      (2,712,654)      (3,026,138)
Net income                                --               --               --               --        152,092,633      152,092,633
                                 -------------    -------------    -------------    -------------    -------------    -------------
Balance at December 31, 2000        51,228,154    $   5,122,816    $    (643,606)   $ 303,958,715    $ (161,683,557) $  146,754,368
                                 =============    =============    =============    =============    =============    =============
Issuance of shares in                1,281,164          128,116             --             15,509             --            143,625
   connection with exercise of
   stock options & warrants
Adjustment to deferred stock
   compensation                           --               --               --        (12,148,504)            --        (12,148,504)
Issuance of common stock for
   401(k) plan                          92,960            9,296             --            237,979             --            247,275
Issuance of shares in
   connection with acquisition       4,007,889          400,789             --         27,074,301             --         27,475,090
Rescission and repayment of
   stockholder loans                      --               --            304,571             --               --            304,571
Retirement of common stock            (728,229)         (72,823)            --         (1,641,300)            --         (1,714,123)
Net loss                                  --               --               --               --       (101,389,809)    (101,389,809)
                                 -------------    -------------    -------------    -------------    -------------    -------------
Balance at December 31, 2001        55,881,938    $   5,588,194    $    (339,035)   $ 317,496,700    $(263,073,366)   $  59,672,493
                                 =============    =============    =============    =============    =============    =============
Issuance of shares in                   27,995            2,800             --              3,919             --              6,719
   connection with exercise of
   stock options & warrants
Adjustment to deferred stock
   compensation                           --               --               --         (6,002,831)            --         (6,002,831)
Issuance of common stock for
   401(k) plan                          67,141            6,714             --             82,442             --             89,156
Rescission and repayment of
   stockholder loans                      --               --            256,036             --               --            256,036
Retirement of common stock             (99,529)          (9,953)            --           (187,786)            --           (197,739)
Net loss                                  --               --               --               --        (43,586,567)     (43,586,567)
                                 -------------    -------------    -------------    -------------    -------------    -------------
Balance at December 31, 2002        55,877,545    $   5,587,755    $     (82,999)   $ 311,392,444    $(306,659,933)   $  10,237,267
                                 =============    =============    =============    =============    =============    =============

</TABLE>

                 See notes to consolidated financial statements


                                       F-4


<PAGE>


                           ACTV, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                  Years ended December 31,
                                                       -----------------------------------------------
                                                          2002               2001               2000
                                                       -------------    -------------    -------------
<S>                                                    <C>              <C>              <C>
Cash flows from operating activities:
Net (loss)/income:                                     $ (43,586,567)   $(101,389,809)   $ 152,092,633

Adjustments to reconcile net (loss)/income
  to net cash used in operations:
Cumulative effect of adopting SFAS No. 133                      --         58,732,197             --
Change in fair value of warrant                           13,599,674        1,028,623             --
Depreciation and amortization                              5,203,094        9,433,626        3,907,631
Stock-based compensation                                  (6,002,831)     (12,148,504)    (186,673,365)
Deferred compensation-- other                                   --             75,000          306,000
Amortization of deferred revenue                          (3,619,812)      (3,619,812)      (1,809,907)
Write-down of capitalized software development costs         282,000             --               --
Write-down of investment                                   1,650,000        1,000,000          750,000
Common stock issued in lieu of cash payment                   89,156        1,767,275        4,560,000
Non-cash portion of restructuring charge                        --         10,601,674             --
Write-down of goodwill                                    12,000,000       11,247,725             --
Minority interest                                         (2,848,712)      (3,206,482)      (1,743,357)
Changes in operating assets and liabilities:
Accounts receivable                                         (628,061)         968,978          286,788
Other assets                                               1,124,336       (2,168,111)      (2,798,883)
Accounts payable and accrued expenses                     (4,511,909)      (2,739,242)       5,745,693
Deferred revenue                                            (188,490)          35,674         (485,032)
                                                       -------------    -------------    -------------
         Net cash used in operating activities           (27,438,122)     (30,381,188)     (25,861,799)
                                                       -------------    -------------    -------------
Cash flows from investing activities:
Investment in short-term investments                     (15,045,551)      (8,951,695)            --
Investments in patents                                    (1,093,996)      (1,005,380)        (500,726)
Purchases of property and equipment                         (953,506)      (8,005,909)     (10,938,456)
 Investment in software development costs                   (708,750)      (2,776,001)      (1,954,979)
Strategic investments                                        (35,921)      (5,266,239)      (3,750,000)
                                                       -------------    -------------    -------------

         Net cash used in investing activities           (17,837,724)     (26,005,224)     (17,144,161)
                                                       -------------    -------------    -------------
Cash flows from financing activities:
(Receipt) payment of letters of credit                          --          2,680,455       (3,165,368)
Retirement of debt--net                                         --               --         (4,567,095)
Net proceeds from subsidiary equity transactions                --               --         13,049,895
Net proceeds from equity financing                             6,719          143,625      150,763,399
Repayment of stockholders loan                                47,031          109,998             --
                                                       -------------    -------------    -------------

         Net cash provided by financing activities            53,750        2,934,078      156,080,831
                                                       -------------    -------------    -------------

Net (decrease) increase in cash and cash equivalents     (45,222,096)     (53,452,334)     113,074,871
Cash and cash equivalents, beginning of period            69,035,707      122,488,041        9,413,170
                                                       -------------    -------------    -------------

Cash and cash equivalents, end of period               $  23,813,611    $  69,035,707    $ 122,488,041
                                                       =============    =============    =============

Supplemental Disclosure to the Consolidated
Statements of Cash Flows For the Year Ended
December 31, 2002

Retirement of common stock                               $197,739
</TABLE>

                 See notes to consolidated financial statements


                                       F-5



<PAGE>


                           ACTV, INC. AND SUBSIDIARIES
             Notes to the Consolidated Financial Statements for the
                  Years Ended December 31, 2002, 2001, and 2000

1. Nature of Operations

ACTV, Inc. and subsidiaries ("ACTV" or the "Company") is a digital media company
that provides proprietary technologies, tools, and technical and creative
services for interactive TV advertising, programming, and enhanced media
applications. We have two operating business segments, which we call Digital TV
and Enhanced Media.

We believe that our Digital TV technologies are unique in providing targeting,
interactivity and accountability for television commercials, and in giving
viewers the ability to instantly customize their viewing experiences for a wide
variety of programming applications. Our Enhanced Media technologies allow both
for the enhancement of video and audio content, including standard TV
programming, with Web-based information and interactivity.

2. Organization and Significant Accounting Policies

Principles of Consolidation--Our consolidated financial statements include the
balances of its operating subsidiaries that are more than 50% owned and
controlled along with Digital ADCO, which is a 45.9% subsidiary controlled by
us. All significant intercompany transactions and account balances are
eliminated.

Property and Equipment--Property and equipment is recorded at cost and
depreciated on the straight-line method over its estimated useful lives
(generally 3 to 5 years). Depreciation expense for the years ended December 31,
2002, 2001, and 2000 aggregated $3,719,959, $4,309,285, and $2,080,420,
respectively.

Patents and Patents Pending--The cost of patents, representing patent
acquisition costs and legal costs relating to patents pending, is being
amortized on a straight-line basis over the estimated economic lives of the
respective patents (averaging 15 years), which is less than the statutory life
of each patent. The balances at December 31, 2002 and 2001, are net of
accumulated amortization of $2,291,777 and $1,607,268, respectively.

Software Development Costs--We capitalize costs incurred for the development of
software products when economic and technological feasibility of such products
has been established. Capitalized software costs are amortized on a
straight-line basis over the estimated useful lives of the respective products
(3 years). The unamortized balance at December 31, 2002 and 2001 is net of
accumulated amortization of $2,991,474 and $2,254,842, respectively.
Amortization expense for the years ended December 31, 2002, 2001, and 2000 was
$798,627, $794,002, and $810,828, respectively.

Cash Equivalents and Short-Term Investments--We consider all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents. Commercial paper investments with a maturity greater than
three months, but less than one year, at the time of purchase are considered to
be short-term investments. The carrying amount of the investments approximates
fair value due to their short maturity.

Revenue Recognition--In businesses where we are delivering specific services and
products, revenue is recognized from sales when a product is shipped and when
services are performed.

Revenue and anticipated profits under long-term contracts are recorded on a
percentage-of-completion basis, generally using the cost-to-cost method of
accounting where sales and profits are recorded based on the ratio of costs
incurred to estimated total costs to completion.

We recognize the revenue related to the sale of indefinite software licenses
upon delivery, installation and acceptance of the software product, unless the
fee is not fixed or determinable or collectibility is not probable. If the fee
is not fixed or determinable, revenue is recognized as payments become due from
the customer. If collectibility is not considered probable, revenue is
recognized when the fee is collected.

Arrangements that include software services, such as training or installation,
are evaluated to determine whether those services are essential to the
functionality of other elements of the arrangement. When software services are
considered essential, revenue under the entire arrangement is recognized as the
services are performed using the percentage-of-completion contract accounting
method. When software services are not considered essential, the fee allocable
to the service element is recognized as revenue as the services are performed.

Where software licenses are granted for a specific period of time, with related
content and maintenance contracts, revenue is deferred and then recognized
ratably over the life of the license.

ACTV and Liberty Livewire LLC, a unit of Ascent Media Group (formerly Liberty
Livewire Corporation), in April 2000 entered into a joint marketing arrangement
to market "HyperTV with Livewire." Ascent Media Group received various rights to
use certain patented ACTV technologies in providing turnkey convergence
services, including application hosting, web authoring services, data
management, e-commerce and other value-added services for advertisers,
television programmers, studios and networks.

                                       F-6

<PAGE>


                          ACTV, INC. AND SUBSIDIARIES
               Notes to the Consolidated Financial Statements for
         the Years Ended December 31, 2002, 2001, and 2000 (Continued)

In connection with granting these licensed rights to Ascent Media Group, we
received a warrant to acquire 2,500,000 shares of Ascent Media Group common
stock at an exercise price of $30 per share. The warrant, which expires in June
2015 and includes registration rights, is exercisable ratably over five years,
beginning April 13, 2001. With certain exceptions, the warrant is not
transferable. The warrant is non-forfeitable and fully vested (as the term
"vesting" is used by the Financial Accounting Standards Board in its EITF 00-8,
"Accounting by a Grantee for an Equity Instrument to Be Received in Conjunction
with Providing Goods or Services"). We recorded an investment and deferred
revenue in the amount of approximately $76.0 million, the estimated value of the
warrant (using the Black-Scholes pricing model) at the time the agreement was
executed. Beginning January 1, 2001, we record changes in fair value in the
investment in warrant to the statement of operations, as the result of our
adoption of SFAS No. 133. We expect the value of the warrant to fluctuate based
on the underlying stock price of Ascent Media Group. We do not currently expect
to exercise or register shares in the coming year. The deferred revenue
resulting from the Ascent Media Group transaction is being amortized into
revenue over a period of 21 years, the contractual term of the joint marketing
arrangement.

Deferred revenue results primarily from the Ascent Media Group joint marketing
arrangement and from payments received from certain customers in advance of
revenue being earned under software licensing, software installation, support
and maintenance contracts.

Accounts Receivable--At December 31, 2002, three customers represented the
following percentages of the accounts receivable balance: 20%, 13%, and 11% of
our accounts receivable balance. At December 31, 2001, one customer represented
33% of our accounts receivable balance. The allowance for uncollectable accounts
totaled $205,810 and $185,337 at December 31, 2002 and 2001, respectively.

Minority Interest--We record minority interest related to Digital ADCO, in which
our ownership interest was 45.9% at December 31, 2002. Co-founders ACTV and
Motorola Broadband formed Digital ADCO in November 1999. Digital ADCO develops
and markets applications for the delivery of addressable advertising. We account
for issuances of subsidiaries' stock as capital transactions. No gain or loss
has been recorded in the statements of operations in connection with any sales
of subsidiary stock. We have no plans to repurchase the subsidiary shares in the
near term, as the we believe these to be strategic investments made by the
counterparties in the transactions.

Financial Instruments-- Effective January 1, 2001, we adopted Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 137 and 138. SFAS
No. 133 requires that all derivative financial instruments be recorded on the
balance sheet at fair value. The provisions of SFAS No. 133 affected accounting
for the 2.5 million restricted warrant issued by Ascent Media Group and held by
us. Prior to the adoption of SFAS No. 133, we carried the warrant at cost. With
the adoption of SFAS No. 133, we now record the warrants at fair value. The
adoption of SFAS No. 133 resulted in our recording a cumulative effect
transition adjustment loss of $58.7 million at January 1, 2001. Beginning in the
first quarter of 2001, we have recorded subsequent changes in the fair value of
the warrants in our statements of operations, which resulted in a charge of
$13.6 million and $1.0 million for the years ended December 31, 2002 and 2001,
respectively.

There may be periods with significant non-cash increases or decreases to our
operating results related to the changes in the fair value of the Ascent Media
Group investment. The carrying value of our derivative instrument approximates
fair value. We determine the fair value of the Ascent Media Group warrant by
reference to underlying market values of Ascent Media Group's common stock as
reported by Nasdaq, and on estimates using the Black-Scholes pricing model.

Earnings Per Share--Basic income (loss) per common share equals net income
(loss) divided by the weighted average number of shares of our common stock
outstanding during the period. Diluted income per share gives effect to the
potential dilution of outstanding stock options for the year ended December 31,
2000. We did not consider the effect of stock options or convertible preferred
stock upon the calculation of the loss per common share for the years ended
December 31, 2002 and 2001, respectively, as it would be anti-dilutive.

Impairment of Long-Lived Assets--Our long-lived assets and identifiable
intangibles are reviewed for impairment whenever events or changes in
circumstances indicate that the net carrying amount may not be recoverable. We
also reevaluate the periods of amortization of long-lived assets to determine
whether events and circumstances warrant revised estimates of useful lives. We
evaluate the carrying value of the long-lived assets in relation to the future
undiscounted future cash flows of the asset when indications of impairment are
present. If it is determined that an impairment in value has occurred, the
excess of the carrying value of the asset will be written down to the present
value of the expected future operating cash flows to be generated by the asset.
We determined that, as of December 31, 2002 and 2001, there had been no
impairment in the carrying value of the long-lived assets.

Goodwill--In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years
beginning after December 15, 2001. Under SFAS No. 142, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests. Other identifiable intangible assets will
continue to be amortized over their useful lives. We adopted SFAS No. 142
beginning on January 1, 2002, at which time we completed the transitional
goodwill impairment test as required. SFAS No. 142, requires that the goodwill
of a reporting unit be tested for impairment between annual tests if an event
occurs or circumstances change that would more likely than not reduce the value
of a reporting unit below its carrying amount. We had no impairment as of
January 1, 2002. During 2002, our Intellocity reporting unit fell significantly
short of the revenue and profitability goals management established for it at
the beginning of 2002. As a result of our review of the realizability of the
goodwill attributed to Intellocity, based on the significant revisions to its
future revenues and profitability, we recorded an impairment charge to goodwill
of $11.5 million during the third quarter of 2002, adjusting the asset value of
such goodwill from $12.0 million to $0.5 million. We continued our review for
possible additional impairment in the fourth quarter ended December 31, 2002 due
to a continued reduction in forecasted revenues, and recorded an impairment
charge for the remaining amount. We will continue to perform future impairment
tests as required by SFAS No. 142. There can be no assurance that future
impairment tests will not result in an additional charge to earnings.


                                       F-7
<PAGE>

                          ACTV, INC. AND SUBSIDIARIES
               Notes to the Consolidated Financial Statements for
         the Years Ended December 31, 2002, 2001, and 2000 (Continued)

Upon adopting SFAS No. 142, we no longer amortized goodwill. Amortization of
goodwill totaled $3.6 and $0.4 million in 2001 and 2000, respectively.

Fair Value of Financial Instruments --The carrying amounts of cash and cash
equivalents, receivables, accounts payable, and accrued liabilities approximate
fair value because of the short maturity of these instruments. The carrying
amounts of long-term receivables approximates fair value as the effective rates
for these instruments are comparable to market rates at year-end. The carrying
amount of investments approximates fair market value.

Stock-Based Compensation--We elected to account for the cost of our employee
stock options and other forms of employee stock-based compensation plans
utilizing the intrinsic value method prescribed in APB Opinion 25 as allowed by
SFAS No. 123, "Accounting for Stock-Based Compensation" APB Opinion 25 requires
compensation cost for stock-based compensation plans to be recognized based on
the difference, if any, between the fair market value of the stock on the date
of grant and the option exercise price. SFAS No. 123 established a fair
value-based method of accounting for compensation cost related to stock options
and other forms of stock-based compensation plans. SFAS No. 123 allows an entity
to continue to measure compensation cost using the principles of APB Opinion 25
if certain pro forma disclosures are made.

The following table illustrates the effect on net income and earnings per share
if we had applied the fair value recognition provisions of SFAS No. 123 to
stock-based employee compensation:

<TABLE>
<CAPTION>
                                                2002               2001               2000
                                         ---------------    ---------------    ---------------
<S>                                      <C>                <C>                <C>
Net (loss)/income
As reported                              $   (43,586,567)   $  (101,389,809)   $   152,092,633
Deduct:   Total stock-based employee
          compensation expense
          determined under fair value-
          based method for all awards,
          net of related tax effects     $    (1,100,136)   $    (2,557,199)   $   (22,666,148)
Pro forma                                $   (44,686,703)   $  (103,947,008)   $   129,426,485

Basic
Net (loss)/income per share
As reported
Before extraordinary item                $         (0.78)   $         (0.77)   $          3.10
Extraordinary item                                  --                 --                (0.03)
Cumulative effect of accounting change              --                (1.07)              --
                                         ---------------    ---------------    ---------------

Basic net (loss)/income per share        $         (0.78)   $         (1.84)   $          3.07
                                         ===============    ===============    ===============

Pro forma
Before extraordinary item                $         (0.80)   $         (0.82)   $          2.63
Extraordinary item                                  --                 --                (0.03)
Cumulative effect of accounting change              --                (1.07)              --
                                         ---------------    ---------------    ---------------

Pro Forma Basic net
  (loss)/income per share                $         (0.80)   $         (1.89)   $          2.60
                                         ===============    ===============    ===============

Diluted
Net (loss)/income per share
As reported
Before extraordinary item                $         (0.78)   $         (0.77)   $          2.53
Extraordinary item                                  --                 --                (0.02)
Cumulative effect of accounting change              --                (1.07)              --
                                         ---------------    ---------------    ---------------

Pro forma Diluted net
  (loss)/income per share                $         (0.78)   $         (1.84)   $          2.51
                                         ===============    ===============    ===============

Pro forma
Before extraordinary item                $         (0.80)   $         (0.82)   $          2.16
Extraordinary item                                  --                 --                (0.02)
Cumulative effect of accounting change              --                (1.07)              --
                                         ---------------    ---------------    ---------------

Pro forma Diluted net
  (loss)/income per share                $         (0.80)   $         (1.89)   $          2.14
                                         ===============    ===============    ===============
</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants:

<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                       -------------------------------------------------------
Description                                 2002                2001                2000
-----------                            ---------------     ---------------     ---------------

<S>                                    <C>                 <C>                 <C>
Dividend yield                                    --                  --                  --
Expected volatility                                107%               128%                 122%
Risk-free interest rate                           4.75%                 5%                   6%
Expected lives                                    3.49               7.14                 3.79
</TABLE>

Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("generally accepted accounting principles") requires management to make
estimates and assumptions that effect the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.


                                       F-8
<PAGE>


                          ACTV, INC. AND SUBSIDIARIES
               Notes to the Consolidated Financial Statements for
         the Years Ended December 31, 2002, 2001, and 2000 (Continued)

Reclassifications--Certain reclassifications have been made to the prior years
financial statements to conform to the current year presentation.

Recent Accounting Pronouncements-- As of August 2001, the FASB issued SFAS No.
143, "Accounting for Obligations Associated with the Retirement of Long-Lived
Assets", which is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The objective of SFAS No. 143 is to provide
accounting guidance for legal obligations associated with retirement of
long-lived assets. The retirement obligations included within the scope of this
pronouncement are those that an entity cannot avoid as a result of the
acquisition, construction or normal operation of a long-lived asset. Components
of larger systems also fall under this pronouncement, as well as tangible
long-lived assets with indeterminable lives. We do not believe that that the
adoption of SFAS No. 143 will impact our financial condition, cash flows and
results of operations. We plan to adopt SFAS No. 143 during the first quarter of
2003.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of
Disposal of Long-Lived Assets", which is effective for financial statements
issued for fiscal years beginning after December 15, 2001. The objectives of
SFAS No. 144 are to address significant issues relating to the implementation of
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", and to develop a single accounting model,
based on the framework established in SFAS No. 121, for long-lived assets to be
disposed of by sale, whether previously held and used or newly acquired. We
adopted SFAS No. 144 during the first quarter of 2002.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", effective for exit or disposal activities
initiated after December 31, 2002. SFAS No. 146 addresses the financial
accounting and reporting for certain costs associated with exit or disposal
activities, including restructuring actions. SFAS No. 146 excludes from its
scope severance benefits that are subject to an on-going benefit arrangement
governed by SFAS No. 112, "Employer's Accounting for Post-employment Benefits",
and asset impairments governed by SFAS No. 144. We do not believe that the
adoption of this Statement will have a material impact on our consolidated
financial position or results of operations.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness
of Others", ("FIN 45"). FIN 45 is effective for guarantees issued or modified
after December 31, 2002. The disclosure requirements were effective for the year
ending December 31, 2002, which expand the disclosures required by a guarantor
about its obligations under a guarantee. FIN 45 also requires the recognition,
at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in the issuance of the guarantee. This interpretation did
not have a significant impact on our consolidated financial position and results
of operations.

In November 2002, the Emerging Issues Task Force ("EITF") of the FASB reached a
consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables."
EITF Issue 00-21 addresses certain aspects of the accounting by a vendor for
arrangements under which the vendor will perform multiple revenue generating
activities. The EITF will be effective for fiscal years beginning after June 15,
2003. We are currently evaluating the effects this EITF may have on our
consolidated financial position and operating results.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123". SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. This
Statement permits two additional transition methods for entities that adopt the
preferable method of accounting for stock-based employee compensation. Both of
those methods avoid the ramp-up effect arising from prospective application of
the fair value based method. In addition, to address concerns raised by some
constituents about the lack of comparability caused by multiple transition
methods, this Statement does not permit the use of the original Statement 123
prospective method of transition for changes to the fair value based method made
in fiscal years beginning after December 15, 2003. SFAS No. 148 shall be
effective for the financial statements for fiscal years ending after December
15, 2002 for companies that volunteer in changing to the fair value method of
accounting for stock options and like awards. The interim disclosure
requirements of SFAS No. 148 for financial reports containing condensed
financial statements become effective beginning after December 15, 2002. We have
adopted the disclosure provisions of this Statement for the year ended December
31, 2002. As such, this Statement did not have an impact on our consolidated
financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities", ("FIN 46"). FIN 46 requires that companies that
control another entity through interests other than voting interests should
consolidate the controlled entity. FIN 46 applies to variable interest entities
created after January 31, 2003, and to variable interest entities in which an
enterprise obtains an interest in after that date. The related disclosure
requirements are effective immediately. We do not anticipate that this
interpretation will have a significant impact on our consolidated financial
position and results of operations.

                                       F-9


<PAGE>



                          ACTV, INC. AND SUBSIDIARIES
               Notes to the Consolidated Financial Statements for
         the Years Ended December 31, 2002, 2001, and 2000 (Continued)


3. Intangible Assets and Goodwill

Goodwill totaled $0.9 million at December 31, 2002 and $12.9 million at December
31, 2001, of which $0 and $12.0 million, respectively, related to our
acquisition of Intellocity.

Accounting for goodwill in accordance with SFAS No. 142, requires that the
goodwill of a reporting unit be tested for impairment between annual tests if an
event occurs or circumstances change that would more likely than not reduce the
value of a reporting unit below its carrying amount.

During 2002, our Intellocity unit fell significantly short of the revenue and
profitability goals that management established for the unit at the beginning of
2002. As a result, we substantially scaled back Intellocity's revenue forecasts
for fiscal 2003 and subsequent periods. We believe this shortfall is principally
due to Intellocity's existing and prospective clients who have reduced
expenditures for enhanced and interactive TV initiatives.

Consequently, we conducted a review of the realizability of the goodwill value
attributed to Intellocity. As a result of this review, we recorded an impairment
charge to goodwill of $11.5 million during the third quarter of 2002, adjusting
the asset value of such goodwill from $12.0 million to $0.5 million. We
continued our review for possible additional impairment in the fourth quarter
ended December 31, 2002 due to a continued reduction in forecasted revenues, and
recorded an impairment charge for the remaining amount.

Our other intangible assets consist of patents, which as of December 31, 2002
and December 31, 2001 were as follows:

                                             December 31,
                                         2002            2001
                                    ------------    ------------

Patents, cost                       $ 11,127,153    $ 10,033,157
Accumulated amortization              (2,291,777)     (1,607,268)
                                    ------------    ------------

Net intangible asset                $  8,835,376    $  8,425,889
                                    ============    ============


Amortization expense related to patents totaled $684,509 and $626,019 during the
years ended December 31, 2002 and 2001, respectively. The estimated aggregate
future amortization expense for the identifiable intangible assets remaining as
of December 31, 2002 is as follows:

          2003                                   $    736,829
          2004                                        736,829
          2005                                        736,829
          2006                                        736,829
          2007                                        736,829
          Thereafter                                5,151,231
                                                   ----------
          Total                                    $8,835,376
                                                   ==========


4. Merger and Acquisition Activity

Acquisition

On March 7, 2001, we acquired all of the assets and business of Intellocity,
Inc., ("Intellocity") a technology and engineering solutions provider focusing
on the interactive television market. We acquired Intellocity for 4,007,890
shares of our common stock, aggregating $23.2 million, and issued options to
purchase 762,665 shares of our common stock valued at $4.3 million, for an
aggregate purchase price of $27.5 million. We were obligated to make an
additional payment of up to 1.5 million shares and options contingent upon
Intellocity's achieving certain performance targets for the year ended December
31, 2001. Intellocity did not meet those targets. Intellocity shareholders are
subject to provisions restricting the sale of the ACTV stock; these restrictions
range over 4 years. The acquisition was accounted for under the purchase method
of accounting in the first quarter of 2001.

The fair value of assets acquired and liabilities assumed in the acquisition of
Intellocity amounted to approximately $1.5 million. Goodwill, representing the
excess cost over the fair value of net assets acquired, was calculated to be
$26.4 million and was being amortized over 7 years. However, since the adoption
of SFAS No. 142 on January 1, 2002, we no longer amortize the goodwill resulting
from this transaction. As a result of our year-end review of the realizability
of long-lived assets attributed to Intellocity, we recorded an impairment charge
to goodwill of $11.2 million during the fourth quarter of 2001, adjusting the
asset value of such goodwill from $23.2 million to $12.0 million. In the third
quarter of 2002 we review the realizability of this goodwill, recording an
impairment charge of $11.5 million. We continued our review for possible
impairment in the fourth quarter ended December 31, 2002, and recorded an
impairment charge for the remaining amount. The results of Intellocity's
operations are included in our consolidated results from the date of
acquisition.

On August 17, 2000, we acquired all of the outstanding capital stock of Bottle
Rocket, Inc., a business engaged in the creation and marketing of online,
games-based entertainment. We acquired Bottle Rocket in exchange for 272,035
shares of our common stock. The acquisition of Bottle Rocket has been accounted
for under the pooling of interests method of accounting prior to the release of
SFAS No. 141, "Business Combinations", and, accordingly, our historical
consolidated financial statements have been restated to include the accounts and
results of operations of Bottle Rocket.


                                      F-10



<PAGE>


                          ACTV, INC. AND SUBSIDIARIES
               Notes to the Consolidated Financial Statements for
         the Years Ended December 31, 2002, 2001, and 2000 (Continued)

The following table represents the results of operations on a pro forma basis,
as if the acquisition of Bottle Rocket and Intellocity had been completed on
January 1, 2000. These pro forma results include estimates and assumptions that
management believes are reasonable.

<TABLE>
<CAPTION>
                                                       For the Year Ended December 31,
                                                    ----------------------------------
                                                           2001               2000
                                                    ---------------    ---------------

<S>                                                 <C>                <C>
Revenues                                            $    15,350,452    $    16,340,236

(Loss) Income before Minority Interest,
Extraordinary Item, and Cumulative effect
of accounting change                                    (46,711,798)       148,642,434

(Loss) Income before Extraordinary Item
and Cumulative effect of accounting change              (43,505,316)       150,385,791

Net (Loss) Income                                   $  (102,237,513)  $    148,974,652

Basic
(Loss)/income per share before extraordinary
item and cumulative effect of accounting change     $         (0.78)   $          3.04
Extraordinary item                                             --                (0.03)
Cumulative effect of accounting change                        (1.05)              --
                                                    ---------------    ---------------

Basic (loss)/income per share                       $         (1.83)   $          3.01
                                                    ===============    ===============

Diluted
(Loss)/income per share before extraordinary
item and cumulative effect of accounting change     $         (0.78)   $          2.48
Extraordinary item                                             --                (0.03)
Cumulative effect of accounting change                        (1.05)              --
                                                    ---------------    ---------------

Diluted (loss)/income per share                     $         (1.83)   $          2.45
                                                    ===============    ===============
</TABLE>


5. Property and Equipment

Property and equipment-net at December 31, 2002 and 2001 consisted of the
following (at cost):


                                                       2002            2001
                                                 ------------    ------------

Machinery and equipment                          $ 12,719,111    $ 11,981,141
Office furniture and fixtures                       1,163,182       1,023,691
Leasehold improvements                                944,678         868,633
                                                 ------------    ------------

                                                   14,826,971      13,873,465

Less accumulated depreciation
  and amortization                                (11,248,795)     (7,528,834)
                                                 ------------    ------------


                                                 $  3,578,176    $  6,344,631
                                                 ============    ============
6. Financing Activities

Common Stock Financing

During the years ended December 31, 2002, 2001 and 2000, we raised approximately
$0, $0 and $129.4 million, respectively, from sales of common stock to outside
investors and $0, $0.1 and $21.3 million, respectively, from the exercise of
stock options and warrants.

On February 3, 2000, we completed a follow-on offering of 4.6 million common
shares, including 0.6 million common shares to cover the over-allotments of our
underwriters, Credit Suisse First Boston, Bear Stearns & Co. Inc., Lehman
Brothers, and Salomon Smith Barney. The 4.6 million total common shares were
priced to the public at $30 per share, for total gross proceeds of $138 million.
We paid underwriting discounts and commissions of $1.80 per share or $8.28
million, resulting in net proceeds of $28.20 per share, or $129.4 million.

On March 27, 2000 Liberty Digital, Inc. invested an additional $20 million in
the ACTV, increasing its investment to 16% by exercising a warrant granted in
March 1999.

In the past we had advanced cash to our employees for the funding of the
employee's exercising of their stock options once the options have been vested
for such employee. As of December 31, 2002 and 2001, we had outstanding
receivables due from our employees related to such advances of $82,999 and
$339,035, respectively.



                                      F-11



<PAGE>


                          ACTV, INC. AND SUBSIDIARIES
               Notes to the Consolidated Financial Statements for
         the Years Ended December 31, 2002, 2001, and 2000 (Continued)

Debt Financing

In January 1998, we issued $5.0 million aggregate principal amount of notes. The
notes had an interest rate of 13.0% per annum, payable semi-annually, with
principal repayment in one installment on June 30, 2003. We had the option to
pay any four semi-annual interest payments in kind rather than in cash, with an
increase in the rate applicable to such payments in-kind to 13.75% per annum. We
chose to make the first two semi-annual interest payments (June 30, 1998 and
December 31, 1998) in-kind. In connection with the note, the holders received on
January 14, 1998 a common stock purchase warrant ("Warrant") of a subsidiary of
ours granted the holders either the right to purchase up to 17.5% of the
fully-diluted shares of common stock of that subsidiary or, through July 14,
1999, to exchange the Warrant for such number of shares of our common stock, at
the time of and giving effect to such exchange, that were equal to 5.5% of the
fully diluted number of shares of common stock outstanding.

For accounting purposes, we allocated approximately $1.4 million to the value of
the Warrant, based on the market value of our common stock into which the
Warrant was convertible at issuance. The Warrant was included outside of
Consolidated Stockholders' Equity due to its cash put feature and the notes were
recorded at a value of proceeds received less the value attributed to the
Warrant. The difference between the recorded value of the notes and their
principal value was being amortized as additional interest expense over the life
of the notes. The Warrant was exchanged and exercised for our common stock
during the first quarter of 1999.

On April 3, 2000, we repaid certain notes in full, thereby incurring a loss on
extinguishment of debt that was recorded as an extraordinary item in the quarter
ended June 30, 2000. The extraordinary loss includes a prepayment premium of
$369,632, and the unamortized original issue discount and deferred issue costs
of $819,294 and $222,213, respectively, for a total loss of $1,411,139, or $0.03
per share.

Preferred Stock Financing

In November 1998, ACTV issued Series B convertible preferred stock ("Series B
Stock"), common stock, and warrants to purchase approximately 1.95 million
shares of common stock at $2.00 per share as a partial exchange for
approximately 179,000 shares of the subsidiary exchangeable preferred stock.
The excess of the fair value of this consideration over the carrying value of
the exchangeable preferred stock for which the Series B Stock was issued is
included in minority interest subsidiary preferred stock dividend and accretion
in the accompanying statement of operations. The Series B Stock was fully
redeemable by ACTV at any time at a 10% premium above face value plus accrued
dividends. The holders of the Series B Stock were prohibited from converting any
shares into common stock through November 13, 1999. Beginning November 13, 1999,
the number of shares issued upon conversion was to be determined by dividing the
liquidation value of $1,000 plus accrued dividends by the conversion price of
$2.00 per common share. Beginning February 13, 2000, the number of shares issued
upon conversion was to be determined by dividing the liquidation value of $1,000
plus accrued dividends by the conversion price of $1.33 per common share. The
beneficial conversion feature related to the possible conversion of the Series B
Stock at $1.33 per share, which equaled $2,527,723 at the issuance date, was
attributed to additional paid-in-capital and was being accounted for as a charge
to net loss applicable to common stockholders over the period from issuance
through February 13, 2000.


Preferred Stock Rights Agreement

Our policy is and has been to license our technology and arrange joint ventures
for its use in a number of different industries. In August 2000, our Board of
Directors adopted a Preferred Stock Rights Agreement, which gives our Board of
Directors certain alternative courses of action if a potential acquirer of 15%
or more of our common stock is deemed unlikely to further such policy or if such
potential acquirer is deemed likely to act inconsistently with the best
interests of our stockholders. Pursuant to the Preferred Stock Rights Agreement,
we could distribute certain preferred stock purchase rights to our current
stockholders. These rights would become exercisable if an outside party became
the beneficial owner of 15% or more of our issued and outstanding common stock,
unless our Board of Directors determines to defer the exercise of, or redeem,
such rights. The potential acquirer's rights under the Preferred Stock Rights
Agreement will be null and void. Once exercisable, each preferred stock purchase
right would entitle the holder thereof to purchase .001 of a share of our Series
C Preferred Stock at an exercise price of $0.00001 per share. Each share of our
Series C Preferred Stock shall entitle the holder thereof to 1,000 votes on all
matters submitted to a vote of our stockholders. Once issued our Board of
Directors could vote to exchange the preferred stock purchase rights for shares
of our common stock. A potential acquirer may be discouraged from completing an
acquisition if it could not be assured of having control of us.

Our Bylaws provide that only a majority of the Board of Directors or the
Chairman of the Board may call a special meeting of the stockholders. In
addition, our certificate of incorporation permits our Board of Directors to
have us designate and issue, without stockholder approval, preferred stock with
voting, conversion and other rights and preferences that could differentially
and adversely affect the voting power or other rights of the holders of our
common stock. Our issuance of preferred stock or of rights to purchase preferred
stock could also be used to discourage an unsolicited acquisition proposal.

ACTV Entertainment, Inc. ("Entertainment") and HyperTV Networks, Inc.
("HyperTV") are subsidiaries of ACTV, Inc. In part as an anti-takeover defense,
in 1997 and 1998 Entertainment and HyperTV granted stock options for their
respective Class B common shares to a limited number of their officers and
employees, which Class B stock options--as amended in December, 1999--were to
become exercisable only upon a "change of control" of ACTV, Inc., as the term
"change of control" was defined in those options. Effective October 2, 2000, all
of those Class B stock options were terminated, with the result that there are
no options outstanding at this date with respect to any of the Class B shares of
either Entertainment or HyperTV.

                                      F-12


<PAGE>


                          ACTV, INC. AND SUBSIDIARIES
               Notes to the Consolidated Financial Statements for
         the Years Ended December 31, 2002, 2001, and 2000 (Continued)

7. Stock Options and Warrants

At December 31, 2002, we had reserved shares of Common Stock for issuance as
follows:

<TABLE>
<CAPTION>
                                                                            Granted
                                                                            (net of
                                                        Authorized     cancellations)     Exercised        Outstanding
                                                       ------------    --------------     ---------        -----------
<C>                                                    <C>               <C>              <C>                    <C>
1989 Non-Qualified Stock Option Plan                       100,000           82,000           (82,000)               0
1996 Qualified Stock Option Plan                           500,000          432,879          (377,879)          55,000
1998 Qualified Stock Option Plan                           900,000          625,331          (190,995)         434,336
1999 Qualified Stock Option Plan                         1,500,000        1,057,877          (182,047)         875,830
2000 Qualified Stock Option Plan                         4,000,000        1,961,857           (30,107)       1,931,750
Options and warrants granted outside of
formal plans                                                             17,913,947       (11,140,936)       6,773,011
                                                                         ----------       ------------       ---------

Total                                                                    22,073,891       (12,003,964)      10,069,927
                                                                         ----------       ------------      ----------
</TABLE>

During the years 2001, 2000, 1999, 1998, 1996 and 1989 the Board of Directors
approved stock option plans providing for stock option grants to employees and
others who provide significant services to us.

At December 31, 2002, we also had outstanding options and warrants not issued
pursuant to a formal plan that were issued to directors, certain employees, and
consultants and pursuant to financing transactions for the purchase of common
stock. The prices of these options and warrants range from $0.24 to $90.19 per
share; they have expiration dates in the years 2003 through 2010. The options
and warrants granted are not part of the stock option plans discussed above.

As a result of certain cashless exercise features, outstanding options totaling
6.9 million at December 31, 2001, were subject to variable option accounting
treatment. A reduction in deferred stock-based compensation expense of $6.0
million, $12.1 million and $186.7 million related to these variable options was
recorded in the years ended December 31, 2002, 2001 and 2000, respectively.
Deferred stock-based compensation expense of $208.3 million related to these
options was recorded for the year ended December 31, 1999. We recorded
stock-based compensation expense in relation to increases in the market price of
our common stock above the exercise price of certain employee options, which
were subject to variable option accounting treatment. To the extent that we had
a stock-based compensation expense liability at the beginning of a given
reporting period, we recognized a reduction in expense related to the
unexercised vested variable options for that period based on a reduction of the
market price for our common stock at the end of the period.

In the first quarter of 2002, we rescinded the applicable option exercise
provisions that resulted in the variable option accounting treatment in our
financial statements.

In January 2002, we canceled outstanding options totaling 2,093,334 shares at
exercise prices of $6.50 to $13.50 and, in their place, granted new options
totaling 1,046,667 shares at an exercise price of $2.00 per share, which was
above the market value of such shares at the time of grant. All the grantees
were employees whose salary compensation had been reduced in conjunction with
our restructuring efforts in the second half of 2001. However, the executive
officers whose salary compensation was reduced were not eligible to participate.

The newly granted options are subject to variable option accounting treatment.
That is, if the closing market price of our common stock is greater than $2.00
per share at any reporting date, we will recognize a non-cash compensation
expense equal to the difference between such market price and $2.00 multiplied
by the number of outstanding option shares subject to variable accounting
treatment. To the extent that we are carrying an accrued expense of this type at
any given reporting date and there is a decline in the market price of our stock
at the end of the subsequent reporting period, we will recognize a reduction in
expense for the subsequent period. Our December 31, 2002 consolidated financial
statements reflect no expense related to the 1,046,667 variable options, since
the closing market price of our common stock at December 31, 2002 was less than
the option exercise price of $2.00 per share.



                                      F-13
<PAGE>


                          ACTV, INC. AND SUBSIDIARIES
               Notes to the Consolidated Financial Statements for
         the Years Ended December 31, 2002, 2001, and 2000 (Continued)

A summary of the status of our stock options as of December 31, 2002, 2001 and
2000 is as follows:

<TABLE>
<CAPTION>
                                                             2002                 2001                   2000
                                                             Wtd.                 Wtd.                   Wtd.
                                                             Avg.                 Avg.                   Avg.
                                                  2002      Exer.        2001     Exer.        2000      Exer.
                                                Shares      Price      Shares     Price      Shares      Price
                                           ------------------------------------------------------------------
<S>                                        <C>                     <C>                  <C>
Outstanding at beginning of period           12,041,528              18,696,202           16,736,838
Options and warrants granted                    862,167      $1.94    2,385,837    $1.72   4,698,976     $ 8.87
Options and warrants exercised                 (25,633)      $0.24    (916,942)    $1.79 (2,622,196)     $ 6.74
Options and warrants
forfeited/expired                           (2,808,135)      $7.38  (8,123,569)   $10.85   (117,416)     $11.75
                                            -----------      -----  -----------    -----   ---------     ------

Outstanding at end of period                 10,069,927      $2.77   12,041,528    $4.02  18,696,202     $ 7.66
                                            -----------      -----  -----------    -----   ---------     ------

Options and warrants exercisable at
end of period                                 8,614,209      $2.32    6,604,838    $2.54  10,061,021     $ 8.28
                                            ===========      =====  ===========    =====  ==========     ======
</TABLE>

The following table summarizes information about stock options outstanding at
December 31, 2002:

<TABLE>
<CAPTION>
                                       Weighted
                                        Number            Average            Weighted                              Weighted
                                      Outstanding        Remaining           Average              Number           Average
                                          at            Contractual          Exercise         Exercisable at       Exercise
Range of Exercise Prices              12/31/2002           Life               Price            12/31/2002           Price
--------------------------            ----------        -----------          ---------        --------------      ----------
<S>                                  <C>                <C>                 <C>                <C>                <C>
$0.00 to 4.00                           8,305,240          3.1 Years           $1.59              7,715,576          $1.57
$4.01 to 8.00                           1,112,252          2.3 Years           $6.71                386,508          $6.20
$8.01 to 12.00                            375,834          1.6 Years           $9.23                365,834          $9.23
$12.01 to 16.00                           276,000          2.3 Years          $13.63                145,690         $13.79
$16.01 to 100.00                              601          0.7 Years          $81.85                    601         $81.85
                                              ---          ---------          ------                    ---         ------

Total Number Outstanding               10,069,927          2.9 Years           $2.77              8,614,209          $2.32
                                       ----------          ---------          ------              ---------          -----
</TABLE>


The weighted average exercise price of options granted during 2002, 2001 and
2000 was $1.94, $1.72, and $8.87 per share, respectively, excluding the value of
options granted and terminated within the year. In the case of each issuance,
options were issued at an exercise price that was higher than the fair market
value of our common stock on the date of grant.

8. Stock Appreciation Rights Plans

As of December 31, 1998, we had granted 896,000 outstanding Stock Appreciation
Rights ("SARs") (with an exercise price of $1.50 per share). The SARs expired
between 2001 and 2006. In May 1999, three directors agreed to retroactively
exercise their vested SARs for unregistered shares of common stock, based upon
the closing market price of $3 15/16 on January 4, 1999. As a result, the SARs
expense for the first quarter of 1999 was approximately $3.2 million less than
it would have been otherwise. In September 1999, all remaining SARs were
converted into options that became part of our 1999 Option Plan. In 1999, this
conversion resulted in expense of $1.3 million with an additional charge of
$381,000 to future periods when the corresponding options vest. In September
1999, we exchanged all of the outstanding SARs for stock options with the same
exercise prices and vesting dates and cancelled the SAR plans.

In September 1999, all remaining SARs were converted into options under our 1999
option plan. Deferred expenses were recorded related to SARs that had not yet
vested. In May 2001 and May 2000, we recognized $75,000 and $306,000,
respectively, of those deferred expenses as period costs.


                                      F-14




<PAGE>


                          ACTV, INC. AND SUBSIDIARIES
               Notes to the Consolidated Financial Statements for
         the Years Ended December 31, 2002, 2001, and 2000 (Continued)

9. Income Taxes

We account for income taxes in accordance with the provisions of SFAS No. 109,
Accounting for Income Taxes.

Deferred income taxes reflect the net tax effects at an effective tax rate of
40% of (a) temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss and tax credit carryforwards. The tax effects
of significant items comprising our net deferred tax asset as of December 31,
2000, 2001, and 2002 are as follows (amounts in 000's):

<TABLE>
<CAPTION>
                                                              2000         2001         2002
                                                            --------    ---------    ---------
<S>                                                         <C>         <C>          <C>
Deferred tax assets:
       Operating loss carryforwards                         $ 40,684    $  64,199    $  72,709
       Differences between book and tax basis of property        635        2,409        2,078
       Capital Loss                                             None          300          300
       Warrant                                                  None       23,180       25,724
       Deferred Compensation                                   5,980        1,121         None
       Reserve on Loss on Investment                            None         None        1,060
       Other                                                    None          142          254
                                                            --------    ---------    ---------
                                                              47,299       91,351      102,125
Deferred tax liabilities:
       Differences between book and tax basis of property       (477)        None         None
                                                            --------    ---------    ---------

Net deferred tax asset before valuation allowance             46,822       91,351      102,125

Valuation Allowance                                          (46,822)     (91,351)    (102,125)
                                                            --------    ---------    ---------

Net deferred tax asset                                      $      0    $       0    $       0
                                                            ========    =========    =========
</TABLE>

The increase in the valuation allowance for the year ended December 31, 2001,
was approximately $44.5 million and the increase in the valuation allowance for
the year ended December 31, 2002, was approximately $10.8 million. As it is more
likely than not that the net deferred tax asset will not be realized, there was
no provision or benefit for federal income taxes as a result of the net
operating loss in the current year.

At December 31, 2001 and 2002, we had Federal net operating loss carryovers of
approximately $160.5 and $181.8 million, respectively. These carryovers will
expire between the years 2003 and 2023. Section 382 of the Internal Revenue Code
of 1986, as amended, limits the ability of a corporation that undergoes an
"ownership change" to use its net operating losses to reduce its tax liability.
In the event of an ownership change, we would not be able to use the
pre-ownership change net operating losses in excess of the limitation imposed by
Section 382. This limitation generally would be calculated by multiplying the
value of the Company's stock immediately before the ownership change by the
long-term federal rate.

10.  Retirement Plan

We sponsor a 401(k) savings plan for employees who have completed at least 90
days of service. Although we have no obligation to do so, to date we have
matched employee 401(k) deferrals on an annual basis. Vesting of the matching
contributions is based on an employee's term of service with us. To date, we
have made all matching contributions in the form of our common stock. In 2002,
2001 and 2000, we contributed the common stock equivalent of $89,156, $247,275,
and $154,560, respectively.



                                      F-15
<PAGE>


                          ACTV, INC. AND SUBSIDIARIES
               Notes to the Consolidated Financial Statements for
         the Years Ended December 31, 2002, 2001, and 2000 (Continued)

11.  Commitments

At December 31, 2002, future aggregate minimum lease commitments under
non-cancelable operating leases, were as follows:

Year                                       Commitment
----                                       ----------

2003                                        $909,271
2004                                         791,602
2005                                         557,403
2006                                         427,595
2007                                         427,595
Thereafter                                 3,728,221
                                           ---------

Total                                     $6,841,687
                                          ==========



The leases contain customary escalation clauses, based principally on real
estate taxes. Rent expense related to these leases for the years ended December
31, 2002, 2001 and 2000 aggregated $1,110,727, $2,711,375, and $1,240,625,
respectively.

In April 2002, ACTV Entertainment, Inc., a wholly-owned subsidiary of ours,
signed a multi-year agreement with iN DEMAND, pursuant to which iN DEMAND has
been using our digital video technology to offer digital cable customers Nascar
In Car on iN DEMAND. ACTV Entertainment's agreement with iN DEMAND, which covers
a total of approximately 90 Nascar races through 2004, obligates ACTV
Entertainment to incur certain production costs, which it estimates will average
$170,000 per race (See Note 18).

We also have guaranteed commitments under employment contracts with 6 executives
which total $2.5 million and will be paid out in future years.


12.  Concentration of Credit Risk

Financial instruments that potentially subject us to concentrations of credit
risk consist principally of temporary cash investments and receivables.
Concentrations of risk with respect to trade receivables exist because of the
relatively few companies or other organizations with which we currently do
business. We attempt to limit these risks by closely monitoring the credit of
those to whom it is contemplating providing its products, and continuing such
credit monitoring activities and other collection activities throughout the
payment period. In certain instances, we will further minimize concentrations of
credit risks by requiring partial advance payments for the products provided.
Our temporary cash investments consist of investments with high quality
financial institutions.

Individual customers accounted for more than 10% of our revenues during the
years ended 2002, 2001 and 2000. For the year ended December 31, 2002, one
individual customer accounted for 11% of sales. For the year ended December 31,
2001, two individual customers accounted for the following percentages of sales:
11% and 16%. For the year ended December 31, 2000, an individual customer
accounted for 23% of sales. In addition, the recognition of revenue resulting
from the amortization of deferred revenue associated with the joint marketing
arrangement with Ascent Media Group accounted for approximately 32% and 26% of
our total revenues for the years ended December 31, 2002 and 2001.

Included in accounts receivable at December 31, 2002 were receivables from three
customers that accounted for the following percentages of such balance: 11%,
13%, and 20%. Included in accounts receivable at December 31, 2001 were
receivables from one customer that accounted for 33% of such balance.

13.  Fair Value of Financial Instruments

We acquired a warrant to purchase common shares of Ascent Media Group as
described in Note 2. The carrying amounts of other financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses, approximated fair value because of their short maturity.


                                      F-16
<PAGE>

                          ACTV, INC. AND SUBSIDIARIES
               Notes to the Consolidated Financial Statements for
         the Years Ended December 31, 2002, 2001, and 2000 (Continued)

14. Segment Reporting

We have two principal business segments, Digital Television and Enhanced Media.
The Digital Television segment provides technologies, applications and technical
services for interactive television, targeted advertising, and advertising sales
management. The Enhanced Media segment, which develops, markets and licenses
technologies, applications and services for the convergence of the Internet with
television and other video programming.

Information concerning our business segments in 2002, 2001, and 2000 is as
follows:

<TABLE>
<CAPTION>
                                    2002               2001               2000
                                 ------------       -------------       -------------

<S>                              <C>             <C>                           <C>
Revenues
Digital Television               $  2,885,723       $   4,074,434       $          --
Enhanced Media                      8,401,033           9,614,181           8,016,453
                                 ------------       -------------       -------------

Total                            $ 11,286,756       $  13,688,615       $   8,016,453
                                 ------------       -------------       -------------

Depreciation & Amortization
Digital Television               $  3,121,686       $   2,870,503       $   1,675,434
Enhanced Media                      1,218,582           1,631,521           1,183,473
Unallocated Corporate                 862,826           4,931,602           1,048,724
                                 ------------       -------------       -------------

Total                            $  5,203,094       $   9,433,626       $   3,907,631
                                 ------------       -------------       -------------

Interest Income (Expense)
Digital Television               $     36,598       $     246,454       $     (29,229)
Enhanced Media                         40,013              10,875               4,709
Unallocated Corporate               1,200,712           3,923,594           7,466,830
                                 ------------       -------------       -------------

Total                            $  1,277,323       $   4,180,923       $   7,442,310
                                 ------------       -------------       -------------

Net (Loss)/Income
Digital Television               $(13,485,878)      $  (8,060,807)      $  (8,864,572)
Enhanced Media                    (12,918,405)        (67,259,636)        (14,146,874)
Unallocated Corporate             (17,182,284)        (26,069,366)        175,104,079
                                 ------------       -------------       -------------

Total                            $(43,586,567)      $(101,389,809)      $ 152,092,633
                                 ------------       -------------       -------------

Capital Expenditures
Digital Television               $    802,378       $   1,815,830       $   2,722,138
Enhanced Media                          1,847              96,430           2,249,498
Unallocated Corporate                 149,281           6,093,649           5,966,820
                                 ------------       -------------       -------------

Total                            $    953,506       $   8,005,909       $  10,938,456
                                 ------------       -------------       -------------

Total Assets
Digital Television               $  7,859,158       $  12,022,462       $  17,010,470
Enhanced Media                      6,642,736          24,471,782          83,127,887
Unallocated Corporate              64,273,278         103,093,077         135,370,223
                                 ------------       -------------       -------------

Total                            $ 78,775,172       $ 139,587,321       $ 235,508,580
                                 ------------       -------------       -------------

</TABLE>



                                      F-17
<PAGE>


                          ACTV, INC. AND SUBSIDIARIES
               Notes to the Consolidated Financial Statements for
         the Years Ended December 31, 2002, 2001, and 2000 (Continued)

15.  Investments

In 2000, we entered into various strategic equity investments in privately held
companies that operate in our industry. We do not exercise effective control or
significant influence over operations for any of these strategic equity
investments. At December 31, 2000, the investments were stated at cost,
aggregating $3.3 million. During 2000, we wrote-off an investment for $750,000;
the charge was recorded in other expenses. During 2001, we increased our gross
investment assets by $5.3 million and recorded a write-down, reflected in other
expenses, of $1.0 million related to certain of our strategic investments that
we deemed to be other than temporarily impaired. During 2002, we recorded a
further write-down of these investments of $1.7 million. We based our impairment
assessment on the financial results and/or values in the latest rounds of
financing of such investments. The balance of our total strategic cost
investments is $5.8 million at December 31, 2002.

16.  Executive Incentive Compensation

For the years ended December 31, 2001 and 2000, we incurred executive incentive
compensation expense of $2.3 million and $6.9 million, respectively. This
expense, which related to stock incentive compensation awarded in the 2000
fiscal year but paid in a series of quarterly installments, which were subject
to forfeiture under certain conditions. The contractual provision that gave rise
to this bonus, which was based on changes in the market value of ACTV's common
stock and paid in unregistered securities, was cancelled during the second
quarter of 2001.

17.  Corporate Restructuring

During the third and fourth quarters of 2001, we completed certain restructuring
initiatives. As a result, we recorded a restructuring charge of $6.6 million,
which related to the surrender of real estate leases and employee severance
expenses. Components of the $6.6 million expense included:

         o        property and equipment with a book value of $10.8 million,
                  which we sold for $5.5 million to the successor tenant and
                  landlord (charge of $5.3 million).

         o        employee severance expenses of $2.3 million (charge of $2.3
                  million)

         o        a reversal of straight-line rent accrual of $1.0 million
                  (reduction of charge by $1.0 million)

At December 31, 2001, we had $0.8 million remaining in accrued restructuring
charges relating to severance which were paid during the first two quarters of
2002. We had no restructuring charges in the year ended December 31, 2002.

18.  Agreement with iN DEMAND

In April 2002, ACTV Entertainment, Inc., a wholly-owned subsidiary of ours,
signed a multi-year agreement with iN DEMAND, pursuant to which iN DEMAND has
been using our digital video technology to offer digital cable customers Nascar
In Car on iN DEMAND. Nascar In Car is a multi-channel television package that
uses a mix of digital compression technology, real-time telemetry data and
superior graphics to give subscribers an enhanced, interactive viewing
experience. iN DEMAND is distributing the package on a pay-per-view basis
through certain digital cable systems in the United States. ACTV Entertainment's
agreement with iN DEMAND, which covers a total of approximately 90 Nascar races
through 2004, obligates ACTV Entertainment to incur certain production costs,
which it estimates will average $170,000 per race. In turn, ACTV Entertainment
receives a percentage of gross receipts from the sale of pay-per-view
subscriptions. Our revenues to date from Nascar In-Car subscription sales have
been negligible.

19. Agreement with Liberty Media Corporation Regarding Possible Acquisition of
ACTV, Inc.

On September 26, 2002, we entered into an agreement with OpenTV Corp. for the
acquisition by OpenTV of ACTV, Inc. through a stock-for-stock merger. OpenTV
Corp. is an affiliate of Liberty Media Corporation, our largest shareholder. The
merger is subject to approval of both OpenTV and ACTV shareholders and
regulatory approval.

Under the terms of the agreement, each outstanding share of ACTV common stock
will be exchanged in the merger for a fraction of an OpenTV Class A Ordinary
Share equal to $1.65 divided by the then average market price of the OpenTV
Class A Ordinary Shares, provided that if the average market price of an OpenTV
Class A Ordinary Share is then less than $2.25 per share, it will be valued at
$2.25 per share for this purpose and if the average market price of an OpenTV
Class A Ordinary Share is then greater than $6.05 per share, it will be valued
at $6.05 per share for this purpose. In the event that the average market price
of the OpenTV Class A Ordinary Shares at the time of the merger is less than
$0.80 per share then we will have the right to terminate the merger agreement
unless OpenTV elects to adjust the exchange ratio so that our shareholders
receive not less than $0.584 per ACTV common share. The stock-for-stock merger
will be a taxable transaction for our shareholders. Both our board of directors
and that of OpenTV have agreed to recommend the merger to their respective
shareholders and key members of our board and management have entered into
agreements to vote their shares in favor of the transaction.


                                      F-18


<PAGE>


                          ACTV, INC. AND SUBSIDIARIES
               Notes to the Consolidated Financial Statements for
         the Years Ended December 31, 2002, 2001, and 2000 (Continued)

20.  Supplemental Disclosure of Cash Flow Information

We recorded a reduction in non-cash stock-based compensation expense in the
amount of $6,002,831 for the year ended December 31, 2002. We recorded a
reduction of non-cash, stock-based compensation expense in connection with
vested variable options of $12,148,504 for the year ended December 31, 2001. In
the first quarter of 2002, we rescinded the applicable option exercise
provisions for certain options that resulted in the variable option accounting
treatment for such options in our financial statements.

In January 2002, we canceled outstanding options totaling 2,093,334 shares at
exercise prices of $6.50 to $13.50 and, in their place, granted new options
totaling 1,046,667 shares at an exercise price of $2.00 per share, which was
above the market value of such shares at the time of grant. All the grantees
were employees whose salary compensation had been reduced in conjunction with
our restructuring efforts in the second half of 2001. However, the executive
officers whose salary compensation was reduced were not eligible to participate.

The newly granted options will be subject to variable option accounting
treatment. That is, if the closing market price of our common stock is greater
than $2.00 per share at any reporting date, we will recognize a non-cash
compensation expense equal to the difference between such market price and $2.00
multiplied by the number of outstanding option shares subject to variable
accounting treatment. To the extent that we are carrying an accrued expense of
this type at any given reporting date and there is a decline in the market price
of our stock at the end of the subsequent reporting period, we will recognize a
reduction in expense for the subsequent period. Our December 31, 2002
consolidated financial statements reflect no expense related to the 1,046,667
variable options, since the closing market price of our common stock at December
31, 2002 was less than the option exercise price of $2.00 per share.

For the years ended December 31, 2002 and 2001 we recorded a non-cash deferred
expense of $0 and $1.5 million, respectively, for stock-based compensation
related to executive incentive compensation (See Note 16).

During both the years ended December 31, 2002 and 2001, we recorded revenue of
$3,619,812, respectively, from amortization of the deferred revenue recognized
in connection with the investment in warrants of Ascent Media Group (See Note
2).

We made no cash payments of interest or income taxes during the years ended
December 31, 2002 or 2001. During the year ended December 31, 2000, we made cash
interest payments of $204,976, primarily related to the $5.0 million original
fair value note, and no cash payments of income tax.

21.  Digital ADCO

We record minority interest related to Digital ADCO, in which our ownership
interest was 45.9% at December 31, 2002. Digital ADCO was formed in November
1999 and co-founded by ACTV, Inc. and Motorola Broadband. Digital ADCO develops
and markets applications for the delivery of addressable advertising. Under the
terms of our agreement with Motorola Broadband, we licensed five of our patents
to Digital ADCO, and Motorola Broadband licensed six of its patents and made a
capital commitment to Digital ADCO. In August 2000, Digital ADCO, Inc. received
a direct minority investment by OpenTV Corp. OpenTV also contributed patents on
a non-exclusive basis to Digital ADCO. Concurrently, Digital ADCO, Inc. and
OpenTV together created a new subsidiary, named SpotOn International Ltd, to
license and exploit Digital ADCO's technology outside the U.S., Canada and
Mexico. Digital ADCO, Inc.'s issued and outstanding shares of capital stock
presently consist of Class A common stock, having one vote per share and Class B
common stock, having 25 votes per share. All of Digital ADCO's issued and
outstanding shares are presently held by three investors. OpenTV currently owns
the issued and outstanding Class A common shares. ACTV, Inc. and Motorola
Broadband, the co-founders of Digital ADCO, own the issued and outstanding Class
B common shares. ACTV, Inc. currently exercises voting control of Digital ADCO.
We consolidate the results of our Digital ADCO subsidiary, despite our ownership
position of 45.9%, due to our exercise of voting control with respect to such
subsidiary.

For the periods ended December 31, 2002, 2001 and 2000, we allocated losses in
the amount of $3,164,687, $2,890,505, and $1,622,957, respectively, from Digital
ADCO and SpotOn International, Ltd. to Motorola Broadband and OpenTV.





                                      F-19

<PAGE>


                          ACTV, INC. AND SUBSIDIARIES
               Notes to the Consolidated Financial Statements for
         the Years Ended December 31, 2002, 2001, and 2000 (Continued)

22.  Quarterly Results (Unaudited)

The following is a summary of the unaudited quarterly financial information; all
adjustments necessary for a fair presentation of each period were included.

<TABLE>
<CAPTION>

                                               First         Second         Third         Fourth
Year Ended December 31, 2002                  Quarter        Quarter       Quarter       Quarter
----------------------------                  -------       --------       --------       -------
                                                (Dollars in Thousands Except Per Share Data)

<S>                                           <C>           <C>            <C>            <C>
Revenues                                      $ 3,186       $  3,234       $  2,835       $ 2,032

Operating income/(loss)                         1,833         (6,719)       (18,944)       (8,633)

Net income/(loss)                             $   451       $(12,209)      $(23,336)      $(8,493)

Net (loss)/income per share

Basic net income/(loss) income per share
                                              $  0.01       $  (0.22)      $  (0.42)      $ (0.15)
                                              =======       ========       ========       =======

Diluted net income/(loss)                     $  0.01       $  (0.22)      $  (0.42)      $ (0.15)
                                              =======       ========       ========       =======
</TABLE>



<TABLE>
<CAPTION>

                                                              First           Second           Third           Fourth
Year Ended December 31, 2001                                 Quarter         Quarter          Quarter          Quarter
----------------------------                               ----------       ----------       ----------       ----------
                                                                  (Dollars in Thousands Except Per Share Data)
<S>                                                        <C>              <C>              <C>              <C>
Revenues                                                   $    3,273       $    4,226       $    3,259       $    2,929
Operating loss                                                (13,956)          (6,818)          (6,055)         (21,187)
(Loss)/income before cumulative effect of
accounting change                                             (20,377)           8,128           (9,610)         (20,799)
Cumulative transition effect of adopting SFAS No. 133         (58,732)            --               --               --
                                                           ----------       ----------       ----------       ----------

Net (loss)/income                                          $  (79,109)      $    8,128       $   (9,610)      $  (20,799)
                                                           ----------       ----------       ----------       ----------

Net (loss)/income per share
Basic
(Loss)/income before cumulative effect of
accounting change                                          $    (0.39)      $     0.15       $    (0.17)      $    (0.39)
Cumulative transition effect of adopting SFAS No. 133           (1.12)            --               --               --
                                                           ----------       ----------       ----------       ----------

Basic net (loss) income per share                          $    (1.51)      $     0.15       $    (0.17)      $    (0.39)
                                                           ==========       ==========       ==========       ==========

Diluted
(Loss)/income before cumulative effect of
accounting change                                          $    (0.39)      $     0.14       $    (0.17)      $    (0.39)
Cumulative transition effect of adopting SFAS No. 133           (1.12)            --               --               --
                                                           ----------       ----------       ----------       ----------

Diluted net (loss)/income                                  $    (1.51)      $     0.14       $    (0.17)      $    (0.39)
                                                           ==========       ==========       ==========       ==========

</TABLE>





                                      F-20
<PAGE>


                          ACTV, INC. AND SUBSIDIARIES
               Notes to the Consolidated Financial Statements for
         the Years Ended December 31, 2002, 2001, and 2000 (Continued)

Earnings per common share are computed independently for each of the quarters
presented. Therefore the sum of the quarters may not be equal to the full year
earnings or per share amounts.

Results for the first quarter of 2002 included a reduction in stock-based
compensation expense in the amount of $6,002,831 in connection with certain
vested variable options. In the first quarter of 2002, we rescinded the
applicable option exercise provisions that resulted in the variable option
accounting treatment for such options in our financial statements.

Results for the third quarter of 2002 included a non-cash impairment charge of
$11.5 million related to the goodwill associated with the Intellocity
acquisition. The third quarter also included $1.7 million in write-downs related
to strategic investments that we deemed to be other than temporarily impaired.
The fourth quarter included a non-cash impairment charge of $0.5 million for the
remaining balance of goodwill associated with the Intellocity acquisition.

Results for the first quarter of 2001 included additional depreciation and
amortization expense in the amount of $1.8 million due to the relocation to a
new facility and the amortization of goodwill related to the purchase of
Intellocity, Inc. The first quarter also included a write-down of an investment
in warrant in the amount of $59.6 million which was classified as a cumulative
transition effect of adopting SFAS No. 133. Additionally, executive incentive
compensation expense was recorded in the amount of $2.3 million.

Results for the third quarter of 2001 included a restructuring charge of $5.6
million. Results for the fourth quarter 2001 included additional restructuring
charges of $1.0 million and a loss on write-down of goodwill of $11.2 million.

23.  Net (Loss)/Income Per Share

The following table sets forth the computation of basic and diluted
(loss)/income per share:

<TABLE>
<CAPTION>
                                                                                  Years ended December 31,
                                                                   ----------------------------------------------------
                                                                         2002             2001             2000
                                                                   ---------------   ---------------    ---------------
<S>                                                                <C>               <C>                <C>
Numerator:
(Loss)/income before extraordinary item and cumulative effect
of accounting change                                               $   (43,586,567)  $   (42,657,612)   $   153,503,772
Extraordinary loss on early extinguishment of debt                            --                --           (1,411,139)
Cumulative transition effect of adopting SFAS No. 133                         --         (58,732,197)              --
                                                                   ---------------   ---------------    ---------------

Net (loss)income                                                   $   (43,586,567)  $  (101,389,809)   $   152,092,633

Denominator:
Basic weighted-average shares outstanding                               55,918,744        55,014,772         49,501,885
Weighted-average options outstanding                                          --                --           11,217,763
                                                                   ---------------   ---------------    ---------------

Diluted weighted average shares outstanding                             55,918,744        55,014,772         60,719,648
                                                                   ===============   ===============    ===============

Basic
(Loss)/income per share before extraordinary item and cumulative
effect of accounting change                                        $         (0.78)  $         (0.77)   $          3.10
Extraordinary item                                                            --                --                (0.03)
Cumulative transition effect of adopting SFAS No. 133                         --               (1.07)              --
                                                                   ---------------   ---------------    ---------------

Basic (loss)/income per share                                      $         (0.78)  $         (1.84)   $          3.07
                                                                   ===============   ===============    ===============

Diluted
(Loss)/income per share before extraordinary item and cumulative
effect of accounting change                                        $         (0.78)  $         (0.77)   $          2.53
Extraordinary item                                                            --                --                (0.02)
Cumulative transition effect of adopting SFAS No. 133                         --               (1.07)              --
                                                                   ---------------   ---------------    ---------------

Diluted (loss)/income per share                                    $         (0.78)  $         (1.84)   $          2.51
                                                                   ===============   ===============    ===============
</TABLE>


                                      F-21



<PAGE>




15.(a)2.  Financial Statement Schedule

The following Financial Statement Schedule for the years ended December 31,
2002, December 31, 2001 and December 31, 2000 is filed as part of this Annual
Report.

Schedule II--Valuation and Qualifying Accounts and Reserves

<TABLE>
<CAPTION>
                                     Column B               Column C          Column D       Column E
                                    ----------      -----------------------   --------     -----------
                                    Balance at     Charged to    Charged to                 Balance at
                                    Beginning       Costs and       Other                     End of
Description                         of Period       Expenses      Accounts    Deductions     Period
-----------                         ---------       --------      --------   ----------     -----------

<S>                                   <C>           <C>                      <C>           <C>
Year ended 12/31/00:
Accounts receivable allowance
for doubtful accounts                 $   --        $ 68,600      $  --      $ 48,600      $ 20,000
Year ended 12/31/01:
Accounts receivable allowance
for doubtful accounts                 $ 20,000      $187,480      $  --      $ 22,143      $185,337
Year ended 12/31/02:
Accounts receivable allowance
for doubtful accounts                 $185,337      $251,521      $  --      $231,048      $205,810

</TABLE>




















<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized in the City of New York
and State of New York on the 28th day of March 2003.

                                   ACTV, INC.
                                   Registrant

                                    /s/ David Reese
                                   ----------------------------------
                                   David Reese
                                   Chairman, Chief Executive Officer
                                   and Director

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the date indicated.

   Signature                       Title                             Date
   ---------                       -----                             -----

/s/ David Reese                 Chairman, Chief Executive        March 28, 2003
----------------------------    Officer and Director
David Reese


/s/ Christopher C. Cline        Senior Vice President and        March 28, 2003
----------------------------    Chief Financial Officer
Christopher C. Cline


/s/ Day L. Patterson            Executive Vice President,        March 28, 2003
----------------------------    General Counsel and
Day L. Patterson                Secretary


/s/ William C. Samuels          Director                         March 28, 2003
----------------------------
William C. Samuels


/s/ John C. Wilcox              Director                         March 28, 2003
----------------------------
John C. Wilcox


/s/ Michael J. Pohl             Director                         March 28, 2003
----------------------------
Michael J. Pohl


/s/ James Thomas                Director                         March 28, 2003
----------------------------
James Thomas



<PAGE>


               Form of Sarbanes-Oxley Section 302(a) Certification

I, David Reese, Chief Executive Officer of ACTV, Inc., certify that:

         1.       I have reviewed this annual report on Form 10-K of ACTV, Inc.;

         2.       Based on my knowledge, this annual report does not contain any
                  untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  annual report;

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this annual report, fairly
                  present in all material respects the financial condition,
                  results of operations and cash flows of the registrant as of,
                  and for, the periods presented in this annual report;

         4.       The registrant's other certifying officers and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-14 and 15d-14) for the registrant and have:

                  a)       designed such disclosure controls and procedures to
                           ensure that material information relating to the
                           registrant, including its consolidated subsidiaries,
                           is made known to us by others within those entities,
                           particularly during the period in which this annual
                           report is being prepared;

                  b)       evaluated the effectiveness of the registrant's
                           disclosure controls and procedures as of a date
                           within 90 days prior to the filing date of this
                           annual report (the "Evaluation Date"); and

                  c)       presented in this annual report our conclusions about
                           the effectiveness of the disclosure controls and
                           procedures based on our evaluation as of the
                           Evaluation Date;

         5.       The registrant's other certifying officers and I have
                  disclosed, based on our most recent evaluation, to the
                  registrant's auditors and the audit committee of registrant's
                  board of directors (or persons performing the equivalent
                  functions):

                  a)       all significant deficiencies in the design or
                           operation of internal controls which could adversely
                           affect the registrant's ability to record, process,
                           summarize and report financial data and have
                           identified for the registrant's auditors any material
                           weaknesses in internal controls; and

                  b)       any fraud, whether or not material, that involves
                           management or other employees who have a significant
                           role in the registrant's internal controls; and

         6.       The registrant's other certifying officers and I have
                  indicated in this annual report whether there were significant
                  changes in internal controls or in other factors that could
                  significantly affect internal controls subsequent to the date
                  of our most recent evaluation, including any corrective
                  actions with regard to significant deficiencies and material
                  weaknesses.


Date: March 28, 2003

                                         /s/   David Reese
                                         -------------------------
                                         David Reese
                                         Chief Executive Officer


<PAGE>


               Form of Sarbanes-Oxley Section 302(a) Certification

I, Christopher C. Cline, Chief Financial Officer of ACTV, Inc., certify that:

         1.       I have reviewed this annual report on Form 10-K of ACTV, Inc.;

         2.       Based on my knowledge, this annual report does not contain any
                  untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  annual report;

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this annual report, fairly
                  present in all material respects the financial condition,
                  results of operations and cash flows of the registrant as of,
                  and for, the periods presented in this annual report;

         4.       The registrant's other certifying officers and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-14 and 15d-14) for the registrant and have:

                  a)       designed such disclosure controls and procedures to
                           ensure that material information relating to the
                           registrant, including its consolidated subsidiaries,
                           is made known to us by others within those entities,
                           particularly during the period in which this annual
                           report is being prepared;

                  b)       evaluated the effectiveness of the registrant's
                           disclosure controls and procedures as of a date
                           within 90 days prior to the filing date of this
                           annual report (the "Evaluation Date"); and

                  c)       presented in this annual report our conclusions about
                           the effectiveness of the disclosure controls and
                           procedures based on our evaluation as of the
                           Evaluation Date;

         5.       The registrant's other certifying officers and I have
                  disclosed, based on our most recent evaluation, to the
                  registrant's auditors and the audit committee of registrant's
                  board of directors (or persons performing the equivalent
                  functions):

                  a)       all significant deficiencies in the design or
                           operation of internal controls which could adversely
                           affect the registrant's ability to record, process,
                           summarize and report financial data and have
                           identified for the registrant's auditors any material
                           weaknesses in internal controls; and

                  b)       any fraud, whether or not material, that involves
                           management or other employees who have a significant
                           role in the registrant's internal controls; and

         6.       The registrant's other certifying officers and I have
                  indicated in this annual report whether there were significant
                  changes in internal controls or in other factors that could
                  significantly affect internal controls subsequent to the date
                  of our most recent evaluation, including any corrective
                  actions with regard to significant deficiencies and material
                  weaknesses.

Date: March 28, 2003

                                                  /s/  Christopher C. Cline
                                                  --------------------------
                                                  Christopher C. Cline
                                                  Chief Financial Officer




<PAGE>

         INDEX TO EXHIBITS

         (a) 3. EXHIBITS (inapplicable items omitted):

Exhibits
-----------

2.1      Agreement and Plan of Merger dated March 7, 2001, between ACTV, Inc.
         and Intellocity, Inc. ####

2.2      Agreement and Plan of Merger dated as of September 26, 2002, among
         OpenTV Corp., ACTV Merger Sub, Inc., and ACTV, Inc. (A)

3.1(a)   Restated Certificate of Incorporation of ACTV, Inc.

*3.1(b)  Amendment to Certificate of Incorporation of ACTV, Inc.

**3.1(c) Deleted.

3.1(d)   Amendment to Certificate of Incorporation of ACTV, Inc. ##

3.1(e)   Amended and Restated Certificate of Incorporation of ACTV, Inc. ####

3.2      By-Laws of ACTV, Inc. *

3.2(a)   Amended By-Laws of ACTV, Inc. ####

9.1      Deleted.

9.2      Deleted.

9.3      Voting Agreement dated as of September 25, 2002 by and among OpenTV
         Corp, and David Reese, Williams Samuels, Bruce Crowley. A

10.1     Deleted.

10.2     Form of 1989 Employee Incentive Stock Option Plan. *

10.3     Form of Amendment No. 1 to 1989 Employee Incentive Stock Option Plan. *

10.4     Form of 1989 Employee Non-qualified Stock Option Plan. *

10.5     Form of Amendment No. 1 to 1989 Employee Non-qualified Stock Option
         Plan. *

10.8     1996 Non-qualified Stock Option Plan. ****

10.9     1992 Stock Appreciation Rights Plan. ****

10.10    1996 Stock Appreciation Rights Plan. ****

10.11    Deleted-- replaced by 10.40

10.12    Deleted-- replaced by 10.41

10.13    Deleted-- replaced by 10.42

10.14    Master Programming License Agreement dated December 2, 1996, by and
         between ACTV, Inc. and Liberty/Fox Sports, LLC. ****

10.15    Enhancement License Agreement dated December 4, 1996, by and
         between ACTV, Inc. and Prime Ticket Networks, L.P., d/b/a Fox Sports
         West. ++, ****

10.16    Enhancement License Agreement dated February 28, 1997, by and between
         ACTV, Inc. and ARC Holding, Ltd., d/b/a Fox Sports Southwest. ++, ****

10.17    Agreement dated March 30, 1995 between General Instrument Corporation
         and ACTV, Inc.***

10.18    Deleted.

10.19    Deleted.

10.21(a) Deleted.
10.21(b) Deleted.

10.21(c) Option Agreement dated September 29, 1995 between ACTV, Inc. and
         Richard H. Bennett.***

10.21(d) Assignment dated September 29, 1995 between ACTV, Inc.
         and Richard H. Bennett. ***

10.21(e) Deleted -- replaced by 10.44(a).

10.21(f) Deleted.

10.21(h) Deleted -- replaced by 10.44(b).

10.21(j) Deleted -- replaced by

10.44(c). 10.22 Deleted -- expired.

10.23(a) Deleted -- replaced by 10.43(a).

10.23(b) Deleted -- replaced by 10.43(b).

10.23(c) Deleted -- replaced by 10.43(c).

10.23(d) Deleted.

10.23(e) Deleted.

10.23(f) Deleted.

10.23(g) Deleted.

10.24(a) Deleted.

10.24(b) Deleted.

10.24(c) Deleted.

10.24(d) Deleted.

10.24(e) Deleted.

10.25(a) Deleted.

10.25(b) Deleted.

10.25(c) Deleted.

10.26(a) Deleted.

10.26(b) Deleted.

10.26(c) Deleted.

10.26(d) Deleted.

10.26(e) Deleted.

10.26(f) Deleted.

10.26(f)1Deleted.

10.26(g) Deleted.

10.26(h) Deleted.

10.26(i) Deleted.

10.26(j) Deleted.

10.26(k) Deleted.

10.26(l) Deleted.

10.26(l)1Deleted.

10.27    Deleted.

10.28    Deleted.

10.29    Deleted.

10.30    Deleted-- replaced by 10.45

10.31    Deleted-- replaced by 10.46

10.32    Deleted.

10.33    Deleted.

10.34    Deleted.

10.35    Deleted.

10.36    Deleted.

10.37    Deleted.

10.38    Deleted.

10.39    Deleted.

10.40    Deleted-- superseded by 10.40.2

10.41.1  Deleted-- superseded by 10.40.2.

10.40.2  Deleted.

10.41    Deleted-- superseded by 10.41.1.

10.41.1  Employment agreement dated as of August 1, 1995, as amended October 6,
         1999, between ACTV, Inc. and David Reese. ++++

10.41.2  Employment agreement dated as of August 1, 1995, as amended June 22,
         2001, between ACTV, Inc. and David Reese @

10.41.3  Amendment to employment agreement dated as of March 1, 2002, between
         ACTV, Inc. and David Reese @

10.41.4  Salary Amendment to employment agreement dated as of September 1, 2001,
         between ACTV, Inc. and David Reese @

10.41.5  Letter Agreement regarding limited waiver of certain employment
         agreement provisions dated as of August 28, 2002, between ACTV, Inc.
         and David Reese.@

10.42    Deleted-- superseded by 10.42.2.

10.42.1    Deleted-- superseded by 10.42.2.

10.42.2    Deleted-- superseded by 10.42.3.

10.42.3    Restated Employment agreement dated as of August 1, 1995 between
           ACTV, Inc. and Bruce Crowley @

10.42.4    Amendment to employment agreement dated as of March 1, 2001, between
           ACTV, Inc. and Bruce Crowley @

10.42.5    Salary Amendment to employment agreement dated as of September 1,
           2001, between ACTV, Inc. and Bruce Crowley @

10.42.6    Letter Agreement regarding limited waiver of certain employment
           agreement provisions dated as of August 28, 2002, between ACTV, Inc.
           and Bruce Crowley @

10.43(a)   Deleted -- superseded by 10.51.

10.43(b)   Deleted -- superseded by 10.52.

10.43(c)   Deleted -- superseded by 10.53.

10.44(a)   Deleted -- superseded by 10.44(a)1.

10.44(a)1  Amended stock option agreement dated December 1, 1995 between ACTV,
           Inc. and William Samuels. ++++

10.44(b)   Deleted -- superseded by 10.44(b)1.

10.44(b)1  Amended stock option agreement dated December 1, 1995 between ACTV,
           Inc. and David Reese. ++++

10.44(c)   Deleted -- superseded by 10.44(c)1.

10.44(c)1  Amended stock option agreement dated December 1, 1995 between ACTV,
           Inc. and Bruce Crowley. ++++

10.45      Amended license agreement dated March 8, 1999, between ACTV, Inc. and
           ACTV Entertainment, Inc., amending and restating in full the
           agreement dated March 14, 1997. +++

10.46      Amended license agreement dated March 8, 1999, between ACTV, Inc. and
           HyperTV Networks, Inc., amending and restating in full the agreement
           dated March 13, 1997. +++

10.47      Patent assignment and license agreement between ACTV, Inc. and
           Earthweb, Inc. dated December 1, 1997. +++

10.48      Deleted

10.48.1    Deleted.


10.49      Deleted.

10.50      Deleted.

10.51      Deleted-- superseded by 10.51.1

10.51.1    Stock option agreement dated February 21, 1998, as amended January
           10, 2001, between ACTV, Inc. and William C. Samuels. ####

10.52      Deleted-- superseded by 10.52.1

10.52.1    Stock option agreement dated February 21, 1998, as amended January
           10, 2001, between ACTV, Inc. and Bruce Crowley. ####

10.53      Deleted-- superseded by 10.53.1

10.53.1    Stock option agreement dated February 21, 1998, as amended January
           10, 2001, between ACTV, Inc. and David Reese. ####

10.54      Lease dated as of December 1, 1999 between 225 Fourth, LLC, as
           landlord, and ACTV, Inc., as tenant. ++++

10.54.1    Lease dated as of December 1, 1999, as amended May 23, 2000, between
           225 Fourth, LLC, as landlord, and ACTV, Inc., as tenant. ####

10.54.2    Fourth amendment to lease as of October 5, 2001, between 225 Fourth,
           LLC, as landlord, and ACTV, Inc., as tenant. #####

10.55      2000 Stock Incentive Plan ##

10.56      Cooperative Venture Agreement dated April 13, 2000 by and among
           HyperTV Networks, Inc., Liberty Livewire LLC, and HyperTV with
           Livewire, LLC. ###

10.57      Employment agreement dated as of October 1, 2000 between ACTV, Inc.
           and Kevin M. Liga. ####

10.57.1    Salary Amendment to employment agreement dated as of September 1,
           2001, between ACTV, Inc. and Kevin Liga @

10.58      Deleted.

10.59      2001 Stock Incentive Plan. #

10.60      Employment agreement dated March 7, 2001, between ACTV, Inc. and
           Joseph Hassell @

10.60.1    Salary Amendment to employment agreement dated as of September 1,
           2001, between ACTV, Inc. and Joseph Hassell @

10.61      Employment agreement dated as of January 1, 2002 between ACTV, Inc.
           and Christopher C. Cline. @

21         Subsidiaries of the Registrant @

23.1       Independent Auditors Consent @

99.1       Certifications of the Chief Executive Officer provided pursuant to 18
           C.S.C. Section 1350 as adopted pursuant to Section 906 of the
           Sarbanes-Oxley Act of 2002 @

99.2       Certifications of the Chief Financial Officer provided pursuant to 18
           U.S.C. Section 1350 as adopted pursuant to Section 906 of the
           Sarbanes-Oxley Act of 2002 @


------------------

*          Incorporated by reference from Form S-1 Registration Statement (File
           No. 33-34618)

**         Incorporated by reference to ACTV, Inc.'s Form 10-K for the year
           ended December 31, 1993.

***        Incorporated by reference from Form S-1 Registration Statement (File
           No. 33-63879) which became effective on February 12, 1996.

****       Incorporated by reference to ACTV, Inc.'s Form 10-K for the year
           ended December 31, 1996.

*****      Incorporated by reference from the Exhibits to Schedule 13D filed by
           Value Partners, Ltd. on January 23, 1998.

******     Incorporated by reference from Form S-3 Registration Statement filed
           on December 30, 1998.

+          Incorporated by reference to ACTV, Inc.'s Form 10-K for the year
           ended December 31, 1997.

++         Certain information contained in this exhibit has been omitted and
           filed separately with the Commission along with an application for
           non-disclosure of information pursuant to Rule 24b-2 of the
           Securities Act of 1933, as amended.

+++        Incorporated by reference to ACTV, Inc.'s Form 10-K for the year
           ended December 31, 1998.

++++       Incorporated by reference to ACTV, Inc.'s Form 10-K for the year
           ended December 31, 1999.

#          Incorporated by reference to ACTV, Inc.'s Definitive Proxy Statement
           on Schedule 14A filed with the Commission on August 3, 2001.

##         Incorporated by reference to ACTV, Inc.'s Definitive Proxy Statement
           on Schedule 14A filed with the Commission on April 17, 2000.

###        Incorporated by reference to ACTV, Inc.'s amended quarterly report on
           Form 10Q/A for the quarter ended June 30, 2000

####       Incorporated by reference to ACTV, Inc.'s Form 10-K for the year
           ended December 31, 2000.

#####      Incorporated by reference to ACTV, Inc.'s Form 10-K for the year
           ended December 31, 2001. A Incorporated by reference to Amendment
           No.1 of ACTV, Inc.'s and OpenTV Corp's Joint Preliminary Proxy
           Statement filed with the Commission on February 4, 2003.

@          Filed herewith